Both sides fielded mixed lineups in keeping with pre-season traditions but despite a number of stars missing out, the starting players still had a lot of experience as could be seen early on as Manchester City registered a trio of early chances.
Clichy looked to test Jones in the Liverpool goal in the third minute but saw his shot go wide of the target but Jones was tested well just three minutes later when Dzeko forced a good save from the Australian before Jovetic headed over from a corner.
Liverpool responded well as a stunning cross-field pass from Gerrard found Enrique, who squared the ball for Coutinho with the Brazilian sending a shot just wide of the target but Liverpool should have gone in the 15th minute when a cross from Henderson met the head of Lambert whose effort was straight at Caballero.
City carved out a chance when Navas raced down the wing and struck for goal but saw his effort saved well by Jones, Milner also came close for City when his shot deflected off Kelly before drifting wide but the ball was in the net in the 26th minute when Dzeko fired past Jones only to see his effort denied due to an offside decision.
Lambert looked to put Liverpool in front in the 37th minute when he teed a shot across goal but saw Caballero claim the ball easily ensuring that the sides went into the half-time interval level and a number of changes for both sides saw a mix of experience and youth com on to the field.
Hart was called into action early after replacing Caballero as he was forced to deny fellow substitute Robinson after the defender had raced into the area but just three minutes later, City went in front. Navas sent a dangerous cross into the area and a deflection of Gerrard left Jovetic with an easy tap in past Mignolet for a 1-0 lead.
Liverpool looked to bounce back instantly as Coutinho broke through the City defence and struck for goal but saw his shot saved well by Hart and from the resulting corner, Sturridge headed over the bar. However, Liverpool were level on the hour as a stunning effort from Henderson brought them level after he had benefited from the combination of Sturridge and Sterling.
City should have regained the lead just four minutes later as a Kolarov pass found the path of Zuculini who sent a powerful effort towards the goal only to see it cannon back off the crossbar but it was a prelude for Citys second goal as within minutes, they were in front with Navas the creator again as his cross caused chaos for the Liverpool defence which allowed Jovetic to capitalise and score past Mignolet for 2-1.
Coutinho looked to bring Liverpool level in the 70th minute but his effort went wide of the post, Liverpool came close in the 83rd minute as Sterling found Can with the midfielder's effort glancing just past the post via a deflection and from the resulting corner, Toure's header could only find Hart in the City goal.
One of Liverpool's biggest positives last season was their attacking threat and it was clear that despite the loss of Luis Suarez to Barcelona, the threat lived on as a clever pass from Lucas found Sterling who finished past hard with a stunning curling effort to bring the sides level at 2-2.
A perk of the tournament is that each game has to have a winner so the prospect of a deciding penalty shootout was on the horizon but Liverpool thought they had sealed all three points in the second minute of injury time as Sterling fired past Hart only to have his joy dampened by an offside decision meaning penalties would decide the winner.
City started the shootout in the shape of Kolarov but his effort sailed high over the bar meaning Sturridge had the chance to put Liverpool ahead but surprisingly sent his effort over the same way as the previous spot-kick. Toure stepped up for City but despite a good effort saw his shot saved well by Mignolet with Can slotting past Hart to give Liverpool a 1-0 lead.
Navas had the chance to level for City but only managed to draw a good save from Mignolet and with Henderson scoring, Liverpool led 2-0 and looked good for the two points and despite Iheanacho scoring for City, Lucas had the chance to seal the win and did so with a superb penalty for a 3-1 win.