Console vendors aren't allowed to sell hardware at a loss. The price increase would be mild… and a truer reflection of the costs of owning a console (less hidden costs from the walled garden aspects).
The price increase would not have been mild - at the time this was written, it was the cost of a full game. When most only own a handful of games that's a significant difference.
Tells us something about the real price of that console, though. People don't see the price of the walled garden, since (i) it's always been this way, and (ii) it looks like the garden is providing flowers (in the form of a store). Such hidden (or externalised) costs are a bit of a lie. I'd rather be aware of the true price of what I'm buying.
Okay, this is where the analogy breaks down: one can totally have a non exclusive app store where people are guaranteed a certain level of quality, and a reasonable expectation of not downloading malware. For instance: Steam.
The only thing non-exclusive stores can't do is protect people from themselves. And even then you could still have the kid gloves on by default, yet let people take them off whenever they want. For instance by displaying some mildly scary warning about some program not being verified by the OS vendor, and then still let people click on the "install anyway" button. (The "Windows protected your PC" popup would be like that, though I think it overshoots to the point of dishonesty.)
This is more of an anecdote as someone already linked the PS4 example, but: Sony lost on each sale of the PS3, sometimes a lot ($300 on launch), for years. After 4 years, they still lost around $18 per unit lost[1]. It was a costly bet that ended up not working out for them as the PS3 continued to be expensive to manufacture, while also being too complicated to program effectively. (Worse ports, perceived lower performance due to SMT differences compared to the 360, etc.)