If my Merc carries Infinity, it gives him conviction aura at (+12) and me conviction aura (+12) right?
So if he has a Dragon on, it would give us both +14 Fire Aura?

No and also no

conviction aura effects monsters by lowering their resist, so it doesnt matter which char/merc in your party wields it. holy fire affects the person who emits the aura by adding fire dmg, so only this person gets a benefit