I don’t think the problem with having only two viable parties is that they will both tend to be extreme (and that doesn’t strike me as empirically true at the US federal level). Rather, I think the problem is that parties have aggregate power, which means that individual policy preferences get bundled together in ways that may not match an individual voter’s preference. What if I prefer one policy that’s only part of the party X platform, and another that is only part of the party Y platform? Or, another way to think about this party aggregation: what if I prefer the candidate from party X for my local congressional district, but I can’t stand the thought of the likely Speaker of the House of party X?