This article empirically validates a theoretical model from Kiss (B.E. J Econ Anal Policy 17:1–10, 2017) that addresses the transmission channels through which increases in peer achievement levels may affect other students’ achievement. In his model, a higher share of better students has two effects: first, weaker students benefit from skill externalities generated by their better classmates. At the same time, however, better students further induce teachers to instruct at a more demanding pace. Based on these two effects, I derive three hypotheses and test them on data on German secondary school students. Empirical findings are consistent with the model’s predictions: increases in the share of better classmates (a) are always beneficial for good students, (b) may hurt weak students, and (c) boost weak students’ achievement if the extent of interaction between better and weaker students is high. Taken together, these findings suggest that encouraging better and weaker students to interact more could be Pareto-improving.