Mergers Are No Menace

Merger mania hit a new peak in 1998, with $2.5 trillion worth of deals announced worldwide. This year promises to be even hotter. There are all kinds of reasons why companies merge, but one underlying macroeconomic force driving the phenomenon is glut. After a decade of huge capital investments in Asia, the U.S., and elsewhere, supply outpaces demand nearly everywhere. This is sending prices lower, eroding corporate profits, and increasing layoffs. Mergers, especially among big, like-size companies, are the market's way of reducing supply. Antitrust policy must focus on maintaining competition. But with the global economy facing a deflationary spiral, leeway should be given to some mergers that cut back overcapacity.

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