One console dominating makes the others stand on their toes and actually looking for something unique.
What we get with two big competitors are save bets, save bets, and a lot of shooters.

There's something to say for both options, I like rol's post in that matter.

But the PS1 and PS2 were also the perfect consoles to lead their gen. With N64 leading we wouldn't have those big games like MGS or FFVII, and the N64 was controller so glad it didn't become the standard. The Dualshock and its predecessors feel very neutral to every genre.

And it would've been awful if the Gamecube or Xbox lead the 6th gen. Gamecube for not being able to play DVD's, meaning that you had to have 2 separate devices under you tv(gamecube+dvd player rather than just a ps2). And Xbox, for being such a huge console with a gigantic controller without Japanese support.

So it was really convenient those 2 consoles dominated. Last gen was more chaotic. The leader was ignored by most 3rd parties and multiplatform games(HD games) skipped the system. Japanese games being moneyhatted by Microsoft that skipped PS3 initially, then bombed and were ported to PS3 too little too late. Sony with all its errors with the launch of PS3.

because when a company dominats they do really consumer unfriendly bullshit stuff like with the xbone. so we need everyone to buy xbones to make sure sony doesn't have their xbone moment...

Its not a bad thing by itself, but it may lead to a complacent state of affairs because the manufacturer holds all the power. Customers and developers would be in a dependency situation.
With that said, it doesnt mean that its a good excuse when a company deserves to dominate for making the right decisions.

Monopolies are good in some markets. Gaming, I like to have as much healthy competition as possible

That's why the 7th gen was the best: everybody won.

But the 360 didn't dominate, it just did much better then the Xbox before it. 

 MS was arrogant because they thought the could get away with it, not because of domination. 

It can happen in the PC space because its suited for that. PCs are a neccesity, they aren't bought solely for gaming to the extent that consoles are. If consoles were cheaper more people would buy them, but make them too cheap and the market would need to grow to an unreasonable size just to break even. A fiscal issues would lead to its cancellation just like Sega and their dreamcast.

Consoles are trying out the FTP model, free to play with no price limit on microtransactions, and yet this isn't frequently the case.  The console space cannot yet support what the pc space can, Steam doesn't have to worry about connecting your PC to the internet, or making sure your hardware allows you to plays games, (basically all the stuff Nintendo, MS, and Sony does), they just have to worry about being a better value then Origin.

Much lower operating cost, much less hassle.

Clearly if price was enough, the Ouya would be dominating right now because people can chose to spend a whole bunch of their disposable income on it.

Just because PC gaming and Console gaming are related and interdependent, doesn't mean they are so interchangable that what works on PC will fly on Consoles, where DRM on the former is basically accepted because of the digital nature of games and the provided concessions (cheap prices, family sharing, etc) and on the latter is seen as one of the Seven Deadly Sins.

Probably already been said but:

When the NES was on top, it wasn't the best hardware. Lots of Master Sytem games, even versions of the same games, offered features that the Nes didn't. Meanwhile Nintendo was able to make all kinds of crazy rules for third parties and they followed because they were the only game in town. Wasn't until the N64 that Nintendo's dominace came to an end. At one point, they thought it was okay to charge over $80 for a cartridge--and this was in 1997!!

Sony dominated and we settled for faulty hardware. I don't care what anybody says, I treated my consoles like royalty. There was no reason why I should have had to purchase two PS1's or three PS2's. Meanwhile Nintendo and Microsoft were doing their own thing in attempts to become successful. The online services we enjoy now, the motion controls, the integration of consoles and portables were born of this.

When Sony released the PS3, they had to step their game up. Console quality improves, online features improves, first party games improved, Sony themselves improved==because they had to!

So the PS4 will be dominant and there will be short term gains as mentioned in the OP, but who knows what we'll sacrifice if they dominate to a degree that Nintendo and M$ don't fight back? If the PS3 dominated, would the PS4 be $399 at launch? Would the controller have improved? Would we have PS+? Would they have pushed their studios?

Even the Nintendo dominant consoles allowed the public to settle for monochrome consoles and no backlight. If someone were to really kick Nintendo's ass, the 3DS would be a better console. It would have to be. Look at the Vita. Sony threw everything at Nintendo--a lot of features I'd like to have in a Nintendo portable--but since Nintendo is dominant, they don't need to improve. Gotta look at the bigger picture.

*I freestyled this post, btw. Not much thought behind what I wrote*

If MS ever was to dominate console gaming would be the most unfriendly place in town. Luckily for us they haven't. 

The cost of the hardware compared to the software has no real correllation to a developers profits.
A developer releasing a game on Steam has the same costs associated to it when compared to releasing a game on console.
I.E. Publisher takes a cut, then Valve/Xbox/Playstation/Nintendo take a cut on the game and all the DLC.
However big AAA titles are typically $10 cheaper and if you don't get at-least a 20% discount on the games full price on top of it, then you're doing it wrong as a PC gamer.

Valve however just didn't have to waste billions on building the hardware, Microsoft had already done the hard work on the software layer front.

The console space can support the PC's model of lower prices, it would simply mean that the yearly releases of Call of Duty, Assassins Creed, Battlefield will get less profit, probably make up for it in volume and the smaller developers will have more chance to thrive.