This paper addresses the corporate mergers and reorganizations likely to be involved in the further integration of the European Community identified as ‘Europe in 1992’. Speculation on the future is as cheap as it is unreliable. However, the past contains lessons about mergers and international economic integration clearly relevant to the European Community's prospects. The process of international economic integration has been proceeding slowly but steadily throughout the industrial world since the Second World War, as falling relative costs of international transportation, travel and communication have enlarged the internationally traded proportions of tradable-goods outputs and promoted multinational enterprises and transnational corporate alliances and contracts. These trends have been accompanied by changes in the organization of international markets through the expansion of intraindustry and intracorporate trade. They may also be associated with the increase in the 1980s of transnational mergers and acquisitions within international industries. The interpretation of these mergers is the focus of this paper. If the recent wave of international horizontal mergers can be associated with aspects of international economic integration, we can hope to predict merger activity associated with closer integration in the European Community and anticipate any problems for public policy that integration may entail.

The economic analysis of horizontal mergers is in an unsettled state, and one goal of this paper is to provide an untraditional explanation. Two classic explanations exist. Mergers between direct rivals can give rise to monopoly rents even if entry is not blockaded. Recent research has, however, emphasized the limitation on capture of this gain because the consolidating firms must contract their outputs. Attainment of scale economies is the other classic goal for mergers.