That just isn't true though. Sony and Nintendo have no problem competing at all by the quality of their first-party and exclusive games. For every Call of Duty there is a Horizons or a God of War or Zelda or whatever. Xbox is the worst of all the platforms in terms of that. Even PC and mobile have more (good) games that aren't available on Xbox.
Has Microsoft has any major successes since Halo and Fable, years and years ago? They're desperate for games. Activision isn't going to suddenly make the dominant overnight. If anything, it would barely help stop the bleeding. Microsoft is so far behind right now it's not funny. I'd be way more afraid of competition dying because Microsoft gave up on it rather than buying Activision.