It is, which is why the FTC needs to approve mergers.
> Buying Activision makes the console market more competitive
Why should the FTC care about the console market specifically rather than the gaming market in general?
> How does this reduce competition, and in what market?
The very notion of "console exclusives" reduces competition because it removes incentives to compete on hardware cost or quality and instead compete only on whatever IPs a company happens to own.