We are helplessly addicted to digital cocaine, and so we demand large phones, and so motorola will not make money selling a small phone.
It's like the parent said: our addiction is the product, and so just like a chain-smoker will say "I want to quit" as they buy 5 packs a day, a modern smartphone user will say "I want a smaller screen and to look at ads less" as they hopelessly buy a 10 inch phablet and can't go 5 minutes without pulling it from their pocket to check tiktok.
It is not that the money from advertising flows, it is that the addicted users have already been ruined, and will not buy the devices they say they want.
"No major player wants a smaller screen because it has downstream impacts on the pipeline of addictive material and ad pixels they can stuff into ocular nerves." -- what is the direct (or indirect) pressure that the major players can exert over some more or less independent hw manufacturer like Motorola? I'm not saying it's impossible, it reminds me of e.g. the situation where (pre iphone) carriers blocked phones from having wifi because they wanted them to be dependent on their network, but if something like this is happening it should be possible to roughly point out how.