This thesis discusses the underlying economics of mergers and merger waves. An initial examination of the motives behind mergers and their implications reveals a striking paradox. Although economic intentions are often cited as the motive for undertaking a merger, the evidence suggests that mergers will often result in zero or negative gains to the acquirer. Possible reasons for this paradox are discussed. This thesis introduces a newly constructed data series documenting merger activity in Australia during the period from 1929 to 2002. Econometric testing confirms that merger activity occurs in waves in Australia. Literature suggests that merger activity occurs in response to favourable macroeconomic conditions. Additional econometric testing is used to present compelling evidence that this is not the case. Further critical analysis exposes potential weakness of traditional explanations of merger waves. Finally, it is found that merger activity may be caused by herding behaviour or industry shocks. These stimuli also provide convincing explanations for the existence of recurring merger activity despite many studies showing that mergers are often unprofitable to the acquirer.