I'm not sure the system supports the ability to "merge" cities.
I've always hated the idea of caps so rather than maxing out a city you can just keep growing and growing while receiving an advantage for doing so.
Well originally the reason to level up a city was to get more room to build. City all cities start with the max amount of building spaces the only reason to increase city level is better tech buildings and increase influence. There is also the issue the that the level is tied to the name (town, village, etc) of the city.
Personally though I'm also not to fond of hard caps. Everything has a cap though the best ones make it impossible to reach. So you can't build enough to reach the requirement for that next level. Like in Civ series the city was often limited by the amount of food you could get.
It's been a while since I played Civ but sadly thinking back on it I felt some of those cities were more unqiue the the ones in Elemental. The locality of the economy and unqiness of terrain really played into it. Like I'd have a city in large farm land with really high pop and lots of specialist. I'd have another city near the mountains with lots of mines and high production that often built much of my high end army units becuase it could produce things faster then food and specialist heavy city.
Back on topic though I think people wanna see fewer cities in general and not simply larger mega cities by merging them. I think increasing the distant required between cities it what's needed. I mean right now it's only 5 spaces which is the same as Civ but since Civ plays on a larger scale it's not as much of a problem. While Elemental is played smaller scale and you actually build the cities out on the map they should be spaced out a lot more.
I think limit of 10 spaces would be more acceptable. That may sound like a lot but after the cities are setup and actually start spreading out a bit you quickly realize it's not actually that far. Cities with a min of 10 spaces could expand 2 squares towards each other and then be only 6 space apart meaning it takes 3 turns for average unit on open ground to go from one to the other. That's not really that far.