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Residual demand measures of market power of Russian wheat exporters

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Abstract

Traditionally, the international wheat market has been considered a good example of a market with perfect competition. Yet, several articles provide evidence of imperfect competition and price discrimination in the wheat trade. However, these studies focused on traditional high-quality wheat exporters such as Canada and the United States. In contrast, this article investigates whether Russian wheat exporters exercise market power in eight selected importing countries using the residual demand elasticity (RDE) model. The article makes two major contributions. First, it focuses on a nontraditional exporter, who exports mainly wheat of mediocre quality to low- and middle-income countries. Second, the RDE model is estimated for the first time using a nonlinear estimator, the instrumental variable Poisson pseudo-maximum likelihood estimator. This is important because the double logarithmic functional form can provide biased results in the presence of heteroskedasticity. The results indicate that Russian wheat exporters can exercise market power in only a few markets, while they are price takers in the majority of importing countries.

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