Investigating the benefits of cost system accuracy in a competitive price setting duopoly Eddy Cardinaels Filip Roodhooft Luk Warlop Gustaaf Van Herck ABSTRACT This study reports the results of an experiment designed to investigate the value of more accurate cost reports (ABC) in competitive pricing decisions. Previous work showed that in more competitive environments, cost system choice matters less since there is opportunity to learn from informative market signals. Our study argues that in a dynamic duopoly learning from such informative market signals is less effective when decision makers act as market leaders deciding first on prices. Results show that they tend to neglect the feedback received from superior market players. Compared to second movers (follower), a leader with a biased cost report does not improve performance when its opponent has access to superior cost data. Even more a follower with a more accurate cost report can take advantage from such a leader using biased cost data because leaders tend to rely on their distorted cost figures instead of utilizing the informative market signals. In order to improve profits again, market leaders have a big interest in improving the accuracy of their own cost report. Keywords: Competition, activity based costing, learning, price setting, market leader Eddy Cardinaels is a Ph.D. student in Accounting, Filip Roodhooft is Associate Professor of Accounting, Luk Warlop is Associate Professor in Marketing and Gustaaf Van Herck is Professor of Accounting at the K.U.Leuven. Corresponding author is Eddy Cardinaels, K.U.Leuven, Dept. of Applied Economics, Naamsestraat 69, 3000 Leuven, Belgium, Tel: +32 16326934; Fax: +32 16326732. eddy.cardinaels @econ.kuleuven.ac.be .