Bono has said too much of a good thing is a bad thing. He doesn't want the album to have to many fillers. Alanis Morissette's sophomore effort had 17 songs, full of fillers, and it's no surprise that it sold poorly.
U2 made a wise decision to exclude Mercy. Mercy is already contained in other portions of the album:
It has the line "I feel nothing /Fee-ee-ee-ee-eel!" which closely resembled Vertigo's "I can feeeeel" a lot.
Mercy also has the line "I am alive/ Baby I'm born again, and again/ And again and again /Again. . ." which is not too far removed from All Because Of You's "I’m alive/ I’m being born".
Considering Mercy is a very long song (clocks in at 6 minutes if I remember it well) with a monotonish melody and a chorus that is just the same-old same-old metaphors about love that boybands love to cover ("love puts the blue back into my eye") and lines that already appear elsewhere in the album in better forms and contexts, it is definitely an intelligent omission on U2's part to exclude Mercy.
U2 are about quality and not quantity. And Mercy just doesn't cut it quality-wise.
Cheers,
J