Glad to ramble, I thought of a fusion mechanic too! That does sound cool and would be nice to see in the future. I've been thinking about this for a while, so I have a lot of ideas (even for the visuals - I know that's irrelevant here, but that's how my imagination works).
Your take on the exact mechanics is also what I first had in mind. However, I though about it and that seemed a bit broken (specifically the "gets the better stat" part - for example, fuse a Blissey with anything strong, like a Tyranitar, and it just gets a monstrously huge HP boost; fuse Shuckle and you boosted the subject's defenses to absurd levels with no cost at all).
My following proposition for the mechanic focuses more on having access to both fused Pokémon's moves, as well discouraging the Blissey/Shuckle scenario:
-fusion is possible
in Double Battles only [you need 2 Pokémon, don't want it used willy-nilly all over the place like Mega Evolution or Z-Moves];
-fusion can be done
once per battle [of course];
-fused entity
gets all of the participant's types, sum of participant's HP, average of their other stats [because it will attack twice, which effectively gives it the sum of the participant's attacking stats, also huge double HP, no need for increased defense (we know what happens with Dynamax)];
-fused entity
doesn't get any stat changes or
switch-out healed status conditions that the participants may have [see Visuals below for explanation];
-while fused, participant's
held items and abilities have no effect [of course, can't mix these, too powerful and technically complicated];
-when making a move, the fused entity
makes two moves at once - one from one participant, one from the other, in arbitrary order (LIMITATION OPTIONS: no same move twice, only one status move, some moves cannot stack (Protect, Focus Punch, priority and such being technically tricky in this scenario) etc.);
-fusion
breaks when fused entity goes under X% HP (e. g. 50% or 25%); when it breaks, both
participants get their proportional share of the remaining HP and
keep all stat changes and status conditions the fused entity had;
Visually and thematically:
"The participating Pokémon are returned to their Pokéballs. The Pokéballs are connected with a wire or pole which is extended, filled with energy, spun and thrown in a cool way (think Dynamax football). In the air, a body of energy is materialised from the Pokéballs and their connecting element. It is of generic Pokémon shape (a big, glowing, semi-transparent Substitute Doll), with patchwork colours matching the participant's types. The Pokéballs are its cheeks, the wire a bond between them that allows the Pokémon to control their joined body.
When the fusion breaks, the body fades away and the connector is unplugged from the Pokéballs which roll away each to its side of the field and release their Pokémon."
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Second thing, I also thought of a (really cool, if I may say so)
power armour mechnic (see details here:
https://www.pokecommunity.com/posts/10080673). This is weakness-covering armour imagined primarily to power up weak and mediocre Pokémon by turning their weaknesses into strengths. (You can see how my procedure turned Sableye and Mawile into fast special sweepers and Ledian and Delibird into physical tanks. No, seriously.)
Power armour being as Japanese a trope as for instance Kaiju, we might just see something like that someday.
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In general, my liking of current and upcoming mechanics depends largely on how fun and all-inclusive they are. I don't like overly competitive scenarios or there being Pokémon that you must use if you want to win (which there always will be, but at least it can be made harder to happen). I like Dynamax because of this: it is versatile, potentialy creative and available to all. Mega Evolution on the other hand, as cool as it was, just raised the bar so high only ridiculously strong Pokémon could have fun, while others were ground to dust by them in 3 seconds.