"We have it with DVD, we had it with VHS. We have it with televisions (in the sense that- for the most part- every TV is capable of broadcasting the same signal). So what do we lose by having it for game consoles?"
Jaffe seems to be forgetting that VHS only became the monopoly "standard" after a bloody battle with JVC's Sony's competing Betamax format (edit: brain fart). There was no consortium of companies deciding what would be "best" for the market -- competition simply decided that one format was overwhelmingly better for the price. Sony had similar near-monopoly control in the PlayStation 1 and 2 eras, and it was competition, not cooperation, that brought it about. And for every cooperation success story like DVD, there's a flop like Phillips/MCA's LaserDisc format.
As for television signals, they require a monopoly of sorts because of the limited broadcast spectrum. When you take that away, you get the channel-building, selection-expanding competition between cable, satellite and FIOS TV services.
"Sure you miss out on some features that may otherwise be available if another console was there to compete. But this is always the way when one format wins over another and becomes the standard."
Jaffe seems to forget that the development of video games has been much more dependent on technological change. Without the Genesis pushing Nintendo to upgrade the NES, Nintendo's first system could have easily dominated the market for another five years at least, setting back the state of the art in game design all the way down the road. If a consortium of hardware producers controlled the gaming standard, resistance to change would be even greater.
"And for those few features you lose, don't you make up for it in so many other ways? Massive content choice, being the main one."
The current competitive system allows for thousands of games to be produced every year, the wide majority of them for multiple platforms. Yes, it might suck for the developer to have to port one version of a game to multiple systems, but middleware tools are making that process increasingly streamlined.
"And before you toss 3DO at me as an example as to why this won't work, don't. 3DO failed because- for the most part- it had crap games and was way too expensive and could not compete with the new game hardware coming out that was selling at much cheaper prices. But if the 3DO had been an XBOX 360 or a PLAYSTATION 2....or even a Wii? Well then I think things would have gone differently."
That's the thing ... a 3DO-style system probably wouldn't end up being a PlayStation 2 or a Wii. When a consortium of companies designs a hardware standard (as opposed to just a software standard like DVD), feature-creep tends to set in -- one company wants motion sensitive controls, another wants Blu-ray support, another wants an even more powerful graphics card, another wants digital video recording and a 300GB hard drive, another wants an attachable toaster. Before you know it you get a bloated, expensive system that no one wants to buy and, thus, no one wants to make games for.
With competition, hardware makers have to be price conscious and therefore focus on just the features they feel the consumer and developer markets want. That's why the new, lower-priced hardware you mentioned won out -- because they were designing for the market instead of the pie-in-the-sky desires of a polyglot group of companies.
On the other end of the spectrum, a government-imposed hardware monopoly (the only kind that can really work) can freeze out innovation. Before 1968, only AT&T-provided phones could connect to the nation's single telephone network. Without the opening of this standard to hardware competition, we probably might have never seen advances like answering machines, fax machines, cordless phones and computer modems. And that would be a shame.
Sony PlayStation 3 (late 2012)
Nintendo Wii console
Microsoft Xbox 360