Market Economics, Competition and Finance (continued)

Market Economics, Competition and Finance (continued)

In all policy making, there are significant uncertainties regarding the actual impact of various policy options or the possible courses of action for a company responding to policy changes.  In some cases, there could be changes to cash flows, costs and benefits with these occurring over different time frames.  Finance takes all available information on projected future costs and benefits and subjects them to rigorous evaluation. 

Where there are a number of policy options with costs and benefits accruing over different time periods and differing by year, financial theory provides the tools with which to decide on the most appropriate course of action.  Without this type of analysis, it is possible that decision makers may fail to make the right decision and potentially choose the less optimal option. 

At a European level, the European Commission’s ‘Competitiveness Proofing Toolkit’ sets out the approaches that must be used.  Competitiveness proofing specifically addresses the impacts of interventions on enterprise competitiveness, and the toolkit outlines three dimensions of competitiveness that warrant consideration in any policy assessment:  cost competitiveness, international competitiveness and the capacity to innovate. 

The relevant analytical framework for assessing competitiveness includes an assessment of sectoral inputs, structure and processes; external factors (e.g. market demand and supply); competitive benchmarks; and the impacts of regulatory initiatives and other framework conditions.  The SME market share is also an important indicator to be considered in regards to the likely impact of any proposal on competitiveness, especially if the impacts on competitiveness are much more pronounced for SMEs.

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