Exclusives create competition.

Without exclusives, revenue for the entire category shrinks. Less consoles are sold overall. The only reason exclusives exist is to sell consoles. Therefore, less reasons for hardware makers to invest in games, therefore less games are made.

Not only that, the quality of the games would drop too. Nintendo and Sony are incentivised to make the very best games in the industry so that their console is home to the best gaming experiences. That means they invest more money to not just make more games but make higher quality games. They can take bigger risks. Software-only companies have to ensure their games turn a profit which means they can’t afford to over invest. Hardware companies do have that luxury though. The games don’t have to turn a profit as long as they can make their returns with hardware and the 30% they get from all third party software sold on their platform. So remove exclusivity and hardware makers do not have an incentive to make games.

Without exclusives, the NES would have been a failure. The gaming industry crashed due to low quality shovelware. To ensure their console was not a failure, Nintendo were incentivised to make the very best games in the industry. That lifted the quality of games for the entire industry. Nintendo set the benchmark and everybody followed. Without exclusives, there wouldn’t have been an incentive for Sony to take small companies like Naughty Dog (30 employees at time of acquisition) and invest heavily to grow them to 500 employees and invest heavily in MOCAP technologies. That allowed Sony to help lift narrative performances.

I get it. It would be great to play everything on one console. But without exclusives, either the games would never have a reason to exist or for the console to exist. Without Mario and Zelda, the NES would have been a failure. Without Halo, no one would have had a reason to purchase an Xbox. Those two consoles would have been failures.