The Steam Deck iirc is sold below cost and seems to have been a reasonable success.

The market for consoles would still exist. It would just be that the bar for console manufacturers would be set higher from "make a good console then extract value" to "make a good console, then make the best digital marketplace for it, then extract value" which seems fair to me. Make the big three sweat a lil.

I think consoles still make sense for their simplicity and convenience, there's a substancial demographic that just want a device they can turn on and game right away. They don't want the small annoyances that come with PC gaming (windows updates, proton compatibility, configuring graphics settings on a newly installed games, setting up gamepads, troubleshooting game issues, etc), and I'm not trying to exaggerate these annoyances to make them seem insurmountable, just saying that no matter how small the issue is, it's friction that users don't want. As long as that demographic exists, there will be consoles.

MS already allows you to unlock the ability to run custom code on their hardware for a ~$20 fee. Sony doesn't seem to do this yet, but on the other hand, they did eventually get the disk drive version of the PS5 to not sell at a loss.

So, I don't think it'd affect them too much. Alternative stores would mainly just end up being convenient for small indies and homebrew developers, neither of which would've been able to afford the fees to get onto the official stores anyway.

That's fair, but I don't think that game consoles should (at least today) be placed in the same category as Very Personal Computers.

Steam Deck doesn't cost much more and allows you to run anything you want.

Keep wondering then because game consoles never have been and never will be required by your insurance company to not get dropped from coverage and they will never be how you pay for things in public or the place to carry your government ID or be useful for anything much besides pure entertainment and we usually don't have the same kinds of concerns with entertainment that we do with tools required for living in society. THis "but game consoles" trope is getting real old now. Maybe it's the first you've raised it, but this discussion has many others and so does pretty much every other discussion going back probably 15 years.