Long-Term Investment Decisions Assignment Example | Topics and Well Written Essays - 1250 words

Long-Term Investment Decisions - Assignment Example The level of government intervention is high in an oligopolistic market environment and this situation would prevent potential mergers in the entertainment industry from absorbing smaller corporations. This paper will discuss whether government regulation is needed in this industry and analyze certain potential threats to the expansion of industry through capital projects. Significance of Government Regulation Based on a comprehensive analysis, it can be said that government regulation is essential in a market economy, particularly an oligopolistic market structure like entertainment industry. Achievement of social efficiency and equity are the major reasons for government involvement in a market economy. Social efficiency can be attained at a point where the marginal benefits of either production or consumption to society are equal to marginal costs of production or consumption. In addition, social equality is less likely to be promoted in a market environment where government inter vention is insignificant. As Hyman (2007, p. 67) points out, government involvement in a market economy is particularly vital to prevent the creation of monopoly power, which in turn will result in an output level below the socially efficient level. This practice is also necessary to provide the public with proper information and to enhance market certainty. Probably, lack of certainty would persuade people to produce or consume at a level less than they would choose otherwise. Free market environments seem to respond sluggishly to demand and supply fluctuations and this time lag in response can result in permanent disequilibrium state and cause instability problems. Timely government regulation in a market economy is also crucial to promote adequate provision of dependents and adequate output of merit goods. Evidently, tools like taxes and subsidies are specifically important to address market distortions effectively. To illustrate, imposing tax rates equal to marginal external cos ts and granting subsidy rates equal to marginal external benefits are some potential strategies to resolve externalities. In short, effective government regulation is inevitable to prevent the imposition of external costs and to enhance customer protection. Rationale for Government Intervention in US Currently, the entertainment industry’s long-term expansion plans through mergers are challenged by Federal government regulations. There are various reasons for the intervention of government in the market process in the US. As discussed already, today entertainment industry is an oligopolistic market, which is dominated by four main players. Evidently, the planned mergers would turn the entertainment industry into monopoly and this situation in turn would negatively affect the interests of the society. Under a monopolistic market structure, there is no market competition and therefore the ‘market ruler’ is free to charge any price regardless of consumer interests. In other words, customers do not have any option other than buying the products at the rates fixed by the company. In this situation, the organization may find it profitable to produce inferior or substandard goods because customers are compelled to purchase those items without a second thought. Hence, it can be claimed that creation of a monopolistic market structure would lead to consumer exploitation and this practice may cause customer dissatisfaction. Price discrimination is another negative impact of