Rumours have been swirling regarding the Bayern Munich midfielder ever since reports emerged last week linking him with a move to Anfield.
Nicol told ESPN FC: “I'd like to see him at Liverpool because that would mean he'd just be strengthening the squad and strengthening the competition for places.
“If they do sign him, I don't think he walks into the team. I don't think he is in the starting eleven.
“But yes absolutely, the more quality you have and the more competition you have for places.
“At the very least, it keeps everybody on their toes."