Aren't the PS3 and N64 examples of how the industry self-corrects though?
I mean, the NES generation was pretty much total Nintendo control, and Nintendo exerted great muscle on 3rd parties during that time. This directly led to the emergence of Sega with the Genesis which reduced the SNES market dominance significantly.
The fact that Nintendo's continued hubris and heavy handed practices lured Sony into the industry is just further reinforcement, creating their own worst enemy.
Then Sony upset the apple cart on Nintendo and Sega with PS1, almost entirely due to giving developers what they wanted (3D, optical media, lower royalties) but still exerted some level of unnecessary control on 3rd parties (no 2D). That wasn't enough to earn them defections in the PS1 era, and they provided the same with the PS2, keeping the core loyal.
It wasn't until they dropped the ball in multiple ways leading up to the PS3 for 3rd parties to jump ship to primarily targeting the X360. This is an example of the industry self-correcting in a matter of months, not years, when one key player stops making good decisions.
So there is no real negatives attached to a single platform leading the way in a given generation, as long as the #2 and possibly the #3 can carve out a living in the background (which Nintendo has always been able to do quite well). That lets 3rd parties reduce costs due to less porting and less risk publishing larger quantities (if you're going to sell 500k of a game you'd prefer to ship 500k of that game, not 700k. The risk of being supply constrained on one format and over stocked on another makes multi-platform inherently less profitable if it doesn't add new sales). This in turn results in more new IPs, riskier concepts, etc..
A single dominant platform has typically gone hand in hand with an exceptional gaming generation. I'd rather see a revolving throne than a scrum for who can eek out a slight edge from the middle of the pack.
