Issue R: Timeframes over Which Costs and Benefits are Assessed
The issue
203.The Commission usually assesses the benefits and detriments of an authorisation application looking forward no more than two to five years. This reflects the fact that there is a trade off between the length of time over which detriments and benefits are assessed and the likely reliability or accuracy of the costs and benefits. It is clear that some experts consider that rigorously incorporating dynamic efficiencies in a trade off analysis is beyond the capabilities of known techniques.64 The risk is that the Commission would simply be guessing if its timeframes were to be longer.
204. Nevertheless, there is a question about whether the Commission's timeframes are sufficiently long to take dynamic efficiency into account. The broad consensus reached in recent literature surveys does not support the Schumpeterian hypothesis that big monopolistic corporations are particularly more active in innovation.65 Some of that research indicates that innovation levels are lower in markets that have very little competition or very intense competition. Oligopolistic firms have the strongest incentives to innovate because they have the best opportunities to earn post-innovation rents by "escaping the competition".66
205. If these types of views are accurate then it would seem to be reasonable to presume that the innovation objective will usually be achieved even if the Commission's focus continues to be on the short and medium term costs and benefits, provided there is the flexibility for the Commission to consider any reliable evidence of longer term dynamic effects.
Question
Q29. Are the timeframes over which costs and benefits are assessed appropriate?
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