DP11695 | CATs and DOGs

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There is recent firm level evidence that manufacturing firms export products that they do not produce themselves. Bernard et al. (2016) call this "Carry-Along Trade" (CAT) and show that it is a widespread phenomenon among Belgian manufacturing exports. In this paper, we study why manufacturing firms may decide to have their products carried-along instead of exporting their products themselves. We show that if the "Delivery of Own Goods" (DOG) is an alternative option, the profitability of CAT is determined by demand linkages, transportation cost synergies, and the relative productivities of the CAT and DOG firms. Our focus is on the strategic aspects of CAT, and we illustrate that CAT can produce the same outcomes as product-specific, market-specific collusion.