I think that some kind of size/blobbing restriction on MRs is a good thing, but the current implementation is too inflexible.
The clearest solution as far as I can see is to let Merchant Republics reform into Oligarchic Republics (at a minimum: this should be possible by decision when you reach a certain size). That way MR is more like the Free City government type, a special arrangement while you're small that gets abolished when you go large. Another way to go is to make the penalties for being too large based on your number of provinces *in states* (this is not quite the same as a limit on number of states, as it encourages you to cherry-pick scattered outposts in the best MR style).
Exactly this. Merchant republics will play tall, as I feel they should. It's a better way of balancing them since they have no regencies, can pick and choose their MP types
These are advantages of elective republics generally - Oligarchic still looks like a way better option for a typical country, never mind the more advanced ones. Then again, I think the whole republican re-election system is daft and doesn't really represent anything about how politics works in the real world.
I don't think trade leagues per se are such a big deal given the limitation to OPMs, but MR goods production bonus is a legit advantage that gets stronger as you get bigger, especially now that it applies to your own provinces. If there was no size cap on MRs, you'd end up with 100% trade control of several trade regions, and in each of those regions you'd have a substantial goods produced bonus (50%?) That would indeed be overpowered, so some kind of constraint needs to kick in.
If you really want to change government, just tank your republican tradition
Why should you have to go all the way to monarchy though? It makes no sense that republican government of any form is doomed just because you expanded a bit.
I see no reason why I would ever play the game Vanilla. The Modding community just makes the game so much better in my opinion.
That was effectively DDRJake's answer. It's no good though when we are talking about whether Paradox has made a design error in their game. Yes, you can fix many flaws of the game by modding, but don't we want Paradox to make the game good in the first place? Mods should ideally be about getting an alternative game experience rather than just outright fixing/abolishing bad game mechanics.