The former midfielder believes finishing third and qualifying for the Europa League is not in their best interests.
Arsene Wenger’s side are currently clinging on in the Champions League, having lost three of their four games so far in the group, the latest a 5-1 defeat to Bayern Munich on Wednesday.
They will have to win their final two games and hope the Germans can do them a favour against the other two sides in order to reach the latter stages of the competition.
A third-placed finish would see them enter the Europa League, something they will not be particularly keen on - and Merson says they cannot win the Premier League if that happens.
"They are in a catch 22 now," the Mirror quotes him as saying.
"If they win their next game and Olympiakos get beaten then they have a chance but they don’t want to come third. I don’t think they can win the Premier League if they come third."
The former Gunners star also admitted he was left feeling sorry for the side in their defeat during midweek.
Having put in a highly impressive defensive display in during their 2-0 victory at the Emirates last time around, that did not prove to be the case in the reverse fixture as Arsenal's back four was torn apart by Bayern’s clinical attacking display.
And Merson says he felt sympathy for a naive team.
"They were very naive against Bayern," he added.
"Usually you go to a place like Bayern and you have to set up and be solid and hard to beat. I just don’t think the players knew what they were doing. I felt sorry for them if I’m honest."