Cecilia Garcia-Peñalosa : cecilia.garcia-penalosa[at]univ-amu.fr
Goods and services have been generally analyzed as two di erent items in the consumer portfolio supplied by rms in separate industries. In this paper, we challenge this view by providing evidence on interactions within the rm between foreign sales of goods and services. We show empirically and theoretically that demand complementarities between both activities enable rms that export goods and services - we call them bi-exporters - to boost their manufacturing exports by also providing services. The provision of services thus participates to the perceived vertical di erentiation of the goods. Under monopolistic competition, adding a service boosts rms' sales only through quantities. Accounting for large oligopolistic rms uncovers instead a di erent channel: bi-exporting may increase rms' market power that translates into higher prices. Our IV estimates show the price channel to be important. These results imply that ignoring such complementarities will lead to a mis-quanti cation of the welfare and business consequences of economic integration.