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Edit: The only time you get to have better quality merchants is when you capture a settlement and inherit the enemy merchant or if your merchant miraculously survives the attempted take over by a rival. Their next attempt will most probably eliminate it in the following turn though, unless of course your assassin comes to its rescue.
I am forever been told that I have committed a transgression against my ally even though I have no other choice because my merchants are absolutely useless.
Not sure what's going on with your merchants then. Middle and late game when I recruit them they come out as rank 2, 3 or 4. Depends on the academy I think.
Sometimes the enemy buys out my merchants and sometimes I'll buy out theirs. Especially early game it is pretty much impossible to keep merchants yours for very long. But enemy merchants won't penetrate very deep into your territory so once you grab some land, they become viable.
In one of my late games I have 676.077 revenue, 377.762 expense giving 298.315 income.
My merchants are giving me 143.082 of that revenue. That's 20% of my total revenue and it doubles my net income.
It's a very considerable amount of money to put towards all those very expensive late game buildings. That's the only reason I do the horrible micromanagement going through every city recruiting them to replenish their population numbers and clicking their auto trading on. But fun is the last thing I'll call it.