Regarding the PS3 specifically, that was the breaking point for subsidizing because it ended up being famously and heavily used for compute clusters. We see the same effects today where any chip useful for high end gaming is also useful for AI.
Their mistake wasn't the subsidization but launching with extremely esoteric hardware.
If either company maintained the previous business model, they'd have made the competitor look like a clown. It was basically a prisoner's dilemma, but they both chose to collude. It's hard to explain that without assuming that they're colluding, which is basically a tautology.
[1] - https://www.gamespot.com/articles/hirai-claims-ps3-platform-...
As an aside, I don’t really care about the collusion claim.