What I’m reading is that it’s a quick way to lower expenses and pad the investors’ pockets, flooding the market with developers and reducing their value, to then hire them back a few months later at lower salaries.

That sounds like what I see people comment on Lemmy. Those opinions or impressions are not necessarily true though, or seeing the full picture.

People are laid off, which makes the news. But many others remain employed, those don't make the news. Many others founded or found new companies, which don't make the news.

Creating your own company, with all its investment, management, and risk involved is much scarier, higher investment and risk, personally and professionally, than being employed. Some people are willing to take that leap, others not.

I imagine profitably in creating games is very hard. You need to grow a user base or publicity. The market is flooded with games, publishers, and developers. Only the big ones have marketing budgets big enough that the marketing makes a bigger impact on profitability than the quality and discoverability of the product. (Like CoD investing a similar amount into marketing as the product development cost. And marketing is effective - more than a good game or product.)

Either way, I don't feel I have an overview of the whole market situation, or statistics on the broader market and development people movement. But I'm sure "why don't people start their own companies" is a wrong premise. They do. Some do. We just don't see it.

The hiring back is unlikely to be the same people too. It's new people. At the cost of experience, and possibly gain on lower salaries. I'd be skeptical it's generally good long-term management though. Short-term management is popular. Lay off, you reduced costs, get more people, you increased productivity - and the cycle continues. Managers gotta manage. (/s)