The Oligopolistic Behavior of Kazakh and Russian Wheat Exporters in the South Caucasus: Evidence from a Residual Demand Elasticity Analysis

This study looks at whether Kazakh and Russian wheat exporters leverage their dominant share of the wheat markets in the South Caucasus to exercise market power. We apply a three-stage estimation for systems of simultaneous equations and Zellner’s seemingly unrelated regression to analyse residual demand elasticity. The results of both estimations provide empirical evi-dence of Russian market power in the wheat markets of the South Caucasus but no evidence of a Kazakh oligopoly. Russian exporters possess greater market power in Armenia than in Geor-gia. Market power depends on the presence of competitors in the destination market. The results show that Kazakh exporters restrict the market powers of Russian exporters in the Azerbaijani wheat market, while Russian exporters constrain the market power of Kazakh exporters in the Azerbaijani and Georgian wheat markets. Ukrainian wheat exporters are able to intervene in the market powers of Russian exporters in Azerbaijan and Georgia, while they restrict Kazakh oligopoly in the Georgian market. Some export restrictions imposed by wheat exporting coun-tries significantly affected competition in wheat importing countries.