You don't need a literal monopoly but you need a big moat. And being one of many ARM chipmakers just ain't it.
It depends a lot on the margins you can command. If everyone in the market is playing a game of chicken with their margins to the point that you can’t invest in any major moves, than sure. But that’s not required to be the case (ex. Apple). And you can fund integration via debt if you think it will give you a proper advantage in the long run, but it is risky.
But I still think you are putting the cart before the horse here. The integration is part of the “big moat”. You do it to make your moat bigger. It’s one of the plays used to claw out larger and larger chunks of a competitive market on its way to a duopoly/monopoly, along with consolidation. But it is certainly easier to do as a conglomerate with many revenue streams to pull on (Samsung and Apple both doing in-house chip work for mobile devices for example), or if you are willing to simply fund everything with debt like Amazon.
Honestly, one of the better arguments for Intel staying out of the mobile ARM space is that the biggest potential customers in the space are either: already vertically integrated with their own chip designs (Apple, Samsung) or prepping to do so (Xiaomi).
Because TSMC is pure-play, they have a symbiotic relationship with their customers. Price-gouging them would be a terrible idea- it would end up harming TSMC itself. They are just as dependent on their customers as the inverse.
I didn’t suggest price gouging, per se, but we do see it across industries where folks down the chain don’t have good alternatives. Qualcomm‘s business terms being a good example.
TSMC doesn’t have to rent seek, but so long as they are aware that customers can’t simply walk to a competitor with a comparable node, they can certainly charge a premium for those nodes, and pocket savings of scale for themselves so long as demand remains high, rather than passing it along to their customers. You don’t get a war chest to fend off competitors by being kind to your business partners.
Creating a monopoly in your supply chain to get economies of scale is not in the long-term interests of anyone, really. Unless you happen to own a large enough share of that monopoly to be able to steer it in some way.
Intel may not have a choice. But they aren't guaranteed any success just for recognizing reality.
I’m not trying to suggest that they will have success. But the simple reality that Intel doesn’t have to only fab their own stuff, and with such a pivot, it doesn’t matter as much if Intel is the primary party in monopoly/duopoly situation, or one of many in a market. The fabs get fed so long as the chips are being made for someone. And with the demand for fabs being high right now, the opportunity is there.
Pivoting could also be a good way for Intel to maintain their position in a shifting server landscape. Laptops are a bit more up in the air.