The two clubs could go head-to-head over Blackburn forward Roque Santa Cruz, in whom O'Neill is believed to have been interested last summer.
"Maybe Manchester City could come in in January and make everything look second rate by what they do," said O'Neill.
"I have no inside track on this but you get the impression: Credit crunch? What credit crunch? If the rumours are true that they are talking about paying twice as much for players then that might change the whole dimensions of everything.
"I accept Sir Alex Ferguson's point of view that just by getting players in doesn't mean everyone gels. Jose Mourinho had the opportunity to buy very good players and still had to mould them together. But at the same time getting really quality players in during January might mean they have to pay an inordinate amount of money for them.
"Where does that leave the rest of us? There could be a knock-on effect and if I didn't think that then I would feel January might be relatively quiet. But City could really explode the market. Maybe it is less for us to worry about than the likes of Chelsea."