Naively I would've thought that by making management huge shareholders, (most of) the agents then become principals.

So when we talk about "the shareholders" we also include the CEO.

I guess the argument here is that that actually doesn't work and the CEO would prefer being in charge of a larger company even if it personally costs him tens or hundreds of millions of dollars.

That's what I'm skeptical of.

Being CEO of the larger company would make him more money. His money comes from constant grants of new stock and options and incentives not the simple appreciation of stock granted the day he was hired.

And just in general the incentive of management is to preserve monopoly because it’s a lot less work to sit and collect monopoly profits than to actually compete and win.

The principal agent issue here is that management can sit on their ass all day and make a lot of money instead of working like hell to compete and possibly getting replaced but ultimately creating more shareholder value.