More than one thing can be true at the same time. Deals are usually made because interests are aligned. There is a direct benefit to an overwhelmingly dominant player to be able to point to any competitor. There is also a direct benefit to having people use your product. There is even a tertiary benefit of the money theoretically going to development for Firefox that could feed back into their own product.

If you look at the situation in the reverse, what sense does it make? Why would you pay a direct competitor to exist when the amount of money you put in to them is an incredibly large majority of their revenue? Firefox continues to become more irrelevant, and the amount of their revenue they get from Google doesn't really reflect that trend.

I'm not saying the only reason Firefox exists is for Google to point at it. That doesn't mean it isn't a major one. It also is pretty clear to Mozilla because they sure keep trying (and failing) to find other revenue sources