For digital goods you would be right about sellers profits (to a degree, discarding the minuscule amount of interest the money of your purchase could accrue), for physical the use does degrade the worth faster so the seller would loose out.
Yes, modding games is illegal there. But it has something to do with the way their copyright works afaik. If a company lets you modify their IP, they effectively give up their ownership rights from what I understood.
I play FFXIV and there it is against TOS too (of course it being a MMO modding can have another context), but for quite a few QoL improvements that came out with more recent patches you can clearly see the inspiration.
It would be interesting to know if modding a game like Skyrim there would be forbidden too.