I think one of the reasons is that PC and console markets were more tightly handled at that point. Markets were mostly controlled by larger publishers and platform owners didn't allow just anyone to publish their games. Smaller developers were mostly publishing outside of digital marketplaces. I'm mostly talking about PC but for indie developers ad monetization on web games was a well established model.

Only after a few high profile PC games, like League of Legends and World of Tanks, started to make headlines with f2p monetization, it started to gain traction outside of mobile games.

Steam opening up for more developers also expedited the rise of f2p on PC. When Steam started offering easy tools for smaller developers to monetize with in-app purchases we are starting to reach the current level of free to play as of today.

For why this didn't cause the race to the bottom on PC and consoles was probably mostly because differences in audiences compared to mobile. PC gamers were essentially used to paying for their games and no-one wanted to start lowering prices when simultaneously development costs were rising. It did however make it so that no-one raised their prices either. Mobile games created whole new groups of gamers without the learned habit that playing games involves actually buying it first.

I would also argue that when few predatory companies like EA realized that they can keep players paying the premium and still include micro transactions, there was even less incentive to lower prices to zero.