Pep Guardiola's side will host the Gunners at the Etihad on Sunday in an early top-of-the-table showdown at the Etihad, with both sides keen to prove a point.
City beat Mikel Arteta's men to the title once again last season despite picking up just a single point over their two matches.
However, Shearer believes the reigning champions still have a better team as he named just four Arsenal players in his combined XI.
Shearer opted for Ederson in goal despite David Raya's bright start to the campaign, with the latter's heroics proving vital during Thursday's 0-0 draw with Atalanta in the Champions League.
The Spaniard produced a stunning double save from the penalty spot to ensure Arsenal got off to an unbeaten start in their European campaign.
Sheare picked Kyle's Walker ahead of Ben White in the right-back position despite the former starting just once this season.
The former Magpies captain picked Arsenal's formidable centre-back pairing of William Saliba and Gabriel ahead of the likes of Ruben Dias, John Stones and Manuel Akanji, with Jurrien Timber piping Josko Gvardiol to the left-back position.
In midfield, there was no place for a single Arsenal player, with Shearer picking a City trio of Rodri, Bernardo Silva and Kevin De Bruyne ahead of the likes of Martin Odegaard, Thomas Partey and Declan Rice.
Bukayo Saka is the only attacker that makes the XI, with Shearer lining him up alongside Phil Foden and Erling Haaland.
Shearer believes the two sides will be difficult to separate at the Etihad following their midweek games.
'I am going for a draw in this one,' Shearer told Betfair. 'It's a long week with both teams having played in the Champions League as well, so a draw for both teams isn't a bad result, even though Man City are at home.'
There was no place for an Arsenal midfielder, with Shearer opting for Rodri, Bernardo Silva and Kevin De Bruyne
Meanwhile, Guardiola says Sunday's match is not a title decider, claiming their second fixture at the Emirates will be more vital.
The City boss said in his pre-match press conference: 'In terms of table, it's not so important.
'What will be important is when we go to London in the second part of the season. It's not a motivation that we have to win to be five points ahead after five fixtures! It's to do a good game.'