NCPA - National Center for Policy Analysis

Markets Propel Mergers As Bureaucrats Fume

June 16, 1998

Many economists see natural market forces at work in the recent slew of megamergers between giant companies. They say the record-breaking boom in mergers is fueled by the bull market in stocks, the challenges of global competition and rapid technological change.

Last year there were 7,800 U.S. mergers.

  • On June 9, the market value of all domestic mergers so far this year hit $785.2 billion, according to Securities Data Company.
  • At that pace, domestic mergers in 1998 will total more than $1.5 trillion -- up from $916 billion for all of last year.
  • Thomas DiLorenzo, a Loyola College economist, explains recent deals as a reaction to a global, information-based economy that demands streamlining and efficiency.

"Research shows that at least 50 percent of mergers don't work," explains Thomas Lys of Northwestern University. Heritage Foundation economist William Beach says that to succeed, mergers must build on the "natural efficiencies" that result when two firms join forces.

Congress is holding hearings on mergers, and policymakers want to know if they will create efficiency and competition; whether jobs will be created or destroyed; and whether consumers will be benefited or harmed. But many economists say these are economic questions to be decided by the market, not political ones.

Source: Robert H. Gettlin, "How Healthy Is Urge to Merge?" Investor's Business Daily, June 16, 1998.


Browse more articles on Economic Issues