And if you let these all go to market, you risk eroding user trust (think Google and messaging products). Confusing your users is not a good thing.
That said, the high level point is even without the M&A lever, these companies can still succeed by doing things that seem wasteful. FB is a good example with Snap. They didn't have the M&A lever (for different reasons in that case), but they just built Stories into Instagram, WhatsApp, and Messenger. If you were willing to spend billions on M&A you can just spend them internally. And you don't even need to build a free-market best product, because you have a brand and user base that startups don't.
In any case, I do hope that alone isn't enough to keep big companies entrenched.
Also hi Scott!
People aren't stupid. If one team is simply failing to deliver, then the internal competition is a hedge on that.