If they think they’ve got a competitive advantage vs. GPUs which benefits one of their core products, it would make sense to retain that competitive advantage for the long term, no?

No. If they sell the TPUs for “what they’re worth”, they get to reap a portion of the benefit their competitors would get from them. There’s money they could be making that they aren’t.

Or rather, there would be if TPUs were that good in practice. From the other comments it sounds like TPUs are difficult to use for a lot of workloads, which probably leads to the real explanation: No one wants to use them as much as Google does, so selling them for a premium price as I mentioned above won’t get them many buyers.