The two rivals are scheduled to meet in north London on Sunday with just one point separating them in the table, as the battle for the final Champions League place begins to intensify.
United currently occupy fourth spot but the Gunners are breathing down their necks, while Chelsea are also in the running only a point further back with a game in hand.
The Norwegian has won all nine of his away games in charge at Old Trafford and his team will be slight favourites at the Emirates.
Merson, who played for the Gunners between 1985 and 1997, insists that neither team can afford to lose, while questioning United's chances of conquering Europe this season.
United could qualify for next year's competition if they manage to win the Champions League, and the same goes for Arsenal in the Europa League.
"I think a lot of the top-four race goes down to this game on Sunday," Merson told Sky Sports. "That's why it's a massive football match, whoever loses won't be in the top four.
"But if Arsenal lose they've still got a chance in the Europa League. People are telling me Manchester United could go on and win the Champions League, I'm not sure about that."
The Red Devils won Europe's second-tier competition back in 2017, which bailed them out after a sixth-place Premier League finish.
Merson feels that Arsenal are still capable of qualifying via that unorthodox route, as he backed his old club to overturn a 3-1 deficit at home to Rennes next week .
He added: "I think it's the same for Manchester United, Chelsea and Arsenal, the longer you stay in these tournaments you can get into the scenario of what Manchester United did the other year - they stayed in the Europa League and put all their eggs in that basket and couldn't get in the top four.
"I think it's important for Arsenal and Chelsea to do that at the moment. I think Arsenal will go through, I think they'll have far too much for them in the second leg but there are some very good teams still left in it."