The reason these arguments go in circles is that the rules in this particular case aren't really being followed. Historically the idea of an input to an industry focused on raw materials for instance like steel for a car company. Without that material the company couldn't produce cars.
Sony and by in part the CMA are now trying to argue that a single video game is an input rather than a finished product to be sold like it traditionally was. In addition regulators used to focus on consumer harm and now some are focusing on competitor harm instead which is an odd focus especially when that competitor leads the industry. With shifting rules it can never be clear what the ground rules actually are.
In the end courts may have to decide and regulators will have to prove that MS will or has broken the law. We'll then see what is actually true with regard to this acquisition.
Rick Hoeg has fantastic videos breaking down all of Sony's arguments and why they don't really hold much weight. I'd use his reasoning over anybody on this forum.
Your argument is sophomoric here...
Harm to a major competitor is harmful to consumers in the long run. There's no way to separate the two.
If Sony were to exit the industry or become significantly diminished, particularly as Microsoft shifts revenue streams from per unit sales to a subscription model, but eventually raises the price significantly, there will be no one around to dissuade them from doing this, leaving consumers no choice but to subscribe if they wish to partake in the industry.
There is no arguing against this. We've already seen it with the video industry and there was already significantly more competition in this space.
Streaming costs continue to rise dramatically. Netflix was 8 dollars per month in 2014 and has risen to 20 dollars in just 8 years.
Imagine a situation where Sony has exited the market or is diminished as a competitor and Microsoft increases GamePass from 10 dollars a month to eventually 25 dollars a month.
You used to be able to buy Microsoft Office as a stand alone suite in the Home and Student version for 150 dollars. Now you have to pay at least 70 dollars a year for it. The idea that GamePass isn't going to dramatically increase in price is a fantasy. The only thing preventing this is that Sony is the market leader and is absolutely eating Microsoft's lunch at the moment and Steam has similarly boxed them out on PC.
This deal is about changing that and it's clear as day.
Microsoft has spent 20 years trying to compete directly with Sony with mixed to poor results and Microsoft sees this window to transition from a storefront/platform holder to a subscription holder and be the principal market leader in that through only the means of their purse.