A dev can right now make an arcade system that would maybe even almost double past the top PC graphics you can get right npow. The issues isn't the gap, the issue is that arcade hardware was expensive and you needed to make a return or it was pointless..
I mean Rockstar or WB could right now blow us away with an arcade game with the latest specs high-end PC may not be able to keep up with in 3-4 years, and Take-two would lose more money they they are now even with GTAV selling 80 billion copies.
No, video game developers don't develop graphics chipsets and hardware. Neither Rockstar or WB can develop a piece of hardware that is 3-4 times as powerful as the 1080ti. No company on the planet can currently without just shoving thousands of dollars worth of off the shelf GPU's in it. No dev can make an arcade cabinet that is twice as powerful as two 1080ti's... without also developing a mainboard chipsets that could SLI 3 or 4 1080Ti's in it or using parallel processing server cabinets stacked with Quadro P6000s, which is just insane. This seems self explanatory though.
Just developing an engine that could harness that and differentiate itself from current top tier graphics would be a long shot, they'd have to develop whole new rendering methods, filtering effects that don't exist, and new lighting engines that don't exist. How would they just come up with an engine that has tech from 4 years in the future? That shit doesn't happen anymore,
PC and Workstation GPU's now represent the cutting edge of graphics technology, unlike the days of the Sega Model boards.
Nobody wants to put tons of money on an arcade machine for super graphics and make no money.That is why Arcades died in the west, and that's why most arcade in Japan aren't even attempting to do that, and quite a few actually aren't that powerful at all.
That is not why arcades died in the west dude, by 2001 arcade machines were no longer based on proprietary hardware, if they were, then the said company was buying it from Sega or Namco. The NAOMI was licensed to multiple companies by this time. You should do some reading on this, really.
Here is a good article the verge did three years ago.
Sega throwing tons of money on Naomi was a mistake instead of just focusing on console hardware.
Model 3 was expensive. naomi was the low cost option but they put as much investment in Naoimi arcade games as the Dreamcast console. Which meant they were spending money in two areas.
You talk about asking for links... Where do you get the idea that Sega put just as much money in the Naoimi as they did in developing the Dreamcast? Naoimi WAS the Dreamcast hardware, it was already developed? How does this make sense? How is you think they spent the same amount of capital that it required to develop an entirely new piece of hardware as it did putting said hardware into an arcade cabinet with a few upgrades that consisted of just increasing the amount of parts it already had in it? Just so you know, in reference to your statement that they would need hardware that they could improve incrementally, NAOIMI was modular, you could upgrade it as you wanted:
Multiple NAOMI boards can be clustered to improve graphics performance and to support multiple-monitor output. A special game cabinet for the NAOMI, NAOMI Universal Cabinet, houses up to sixteen boards for this purpose. Multiple-board variants are referred to as NAOMI Multiboard hardware, which debuted in 1999.
I would like a source for the above statement of yours that I put in bold and quoted, because I'm almost certain you made that up. Scratch that, I'm absolutely positive you made that up.
In reference to your statement that Sega was not making much money off the arcade hardware, I'll leave you with this:
From the Sega Retro.org wiki:
It was the most powerful game system in its time, an order of magnitude more powerful than PC graphics cards from 1998, which were still producing Model 2 quality graphics, two years years after the Model 3's release.[45] By 2000, the Sega Model 2 & 3 had sold over 200,000 arcade systems worldwide,[46] making them some of the best-selling arcade game boards of all time. At around $15,000 each (for the Model 2, with the Model 3 costing higher), this amounts to at least over $3 billion revenue from cabinet sales, equivalent to over $4.9 billion in 2014.
See that part about PC's producing model 2 level graphics two years after the release of Model 3?
Like Amy S explained, the GeForce 256 was the first of the era of PC domination with the addition of transform and lighting, but we did not yet have a common denominator API front-end, something that would be established with DX and Open GL, but in 99 some vendors were still using proprietary API's.
For anyone who's interested, this is one of the best articles I've ever read on the history of GPU's, it's an awesome archiving of PC tech in a four part article by Techspot.
By 2002 most new arcade cabinets were just based on PC graphics, because it was no longer cost effective to develop your own hardware. Which leads me back to your point at the top that software devs could magically make cabinets that are 4 years ahead of top tier PC's, that is profoundly....
I'm going to let this discussion go now, do a little research so you don't make statements like the above.
Start with these:
https://en.wikipedia.org/wiki/List_of_Sega_arcade_system_boards#Sega_Model_3
https://en.wikipedia.org/wiki/List_of_Sega_arcade_system_boards#Sega_NAOMI_series
Notice how I use facts and sources.This is a video game forum, you're going to have to get better at this, hope this helps.