The former Reds defender feels the Southampton striker would have offered far more value for money than the troubled Italian.
And the Italian should never have been signed, according to the 52-year-old Scot.
Indeed, the former Liverpool man feels the Reds should have instead opted to recruit Southampton striker Shane Long, who was signed by the Saints for £12 million this summer - £4m less than Balotelli.
“They spent £16 million on Balotelli but I would prefer to have signed someone like Shane Long,” Nicol told talkSPORT.
“He’s someone who will come on the field and throw his guts into a game and give you everything he’s got. He might hot have the ability or the CV of Balotelli but the fans would love him.
“Instead, you’ve got a guy who is not producing on the field and who’s making a mockery of the club off the field.”
Southampton were six points ahead of Liverpool before they traveled to the Emirates Stadium to face Arsenal earlier tonight.