Could be described as some physical form of this effect: https://en.wikipedia.org/wiki/Asch_conformity_experiments
The term would be conformity / normative social influence.
A better example would be mixed boys/girls sports classes in school, where the boys deliberately hold back as to not injure/scare the girls.
It's a pretty obvious and human thing not to go out and completely destroy a much weaker opponent. We're social animals after all.
There also may be an element of energy conservation, there's objectively no need to put in any more effort than necessary. Inefficient.
The mixed boys/girls classes example is, as you said, deliberate. And I too remember holding back on purpose in such situations when I was a kid.
With the arcade, no one was deliberately holding back. I'm sure of it.