That's true but then companies would have a problem where too many people still look qualified after going through rounds of interviews.

If a given company has a lot of people who want to work for it then it makes sense for that company to have people attempt very challenging programming exercises so that the org can filter the applicant pool down to the number of positions they have open.

These companies have the luxury of being able to have hiring processes that turn away perfectly good applicants that couldn't pass their tests (false negatives).