Speaking as someone who has only gamed on a PC for the past ten years, I feel like I'm relatively unbiased when I say I think your argument has some flaws.
First of all, regardless of the platform they're released on, games are in competition with other games. Reducing the number of platforms doesn't change that.
Also, I realize PCs are cheaper these days, but I still don't know how you could get a $350 PC and play new games on anything but the lowest settings (and who wants to do that?) I suppose you could eventually save enough money to compensate by buying lots of games on sale (it's true that dirt-cheap PC games are plentiful), but in general I think the PC will still cost more than buying a console.
But the main crux of your argument that I disagree with is the suggestion that game developers would benefit from having only the PC to develop for. That simply isn't true. As it stands now, they get to develop on multiple platforms, making money from multiple user groups. The idea that everyone who owns a console now would purchase a gaming PC if consoles suddenly didn't exist is extremely unlikely. Issues of cost aside, there are a lot of people out there who don't want all the openness a PC can give them. They want the closed architecture of a console that allows them to plug in in and turn it on for the sole purpose of gaming, and never have to worry about whether it will run the game they purchased as well as it should. So if consoles disappeared, some of those players would switch over to PCs, but a lot of them wouldn't. They'd probably switch to mobile gaming or whatever else was easiest for them (this seems to be happening, anyway - especially here in Japan.)