I don't think you can make any statement on just the pay-to-play aspect alone without thinking about the societal norms where you live. I'm not entirely clear how things are in USA, and I also imagine that it must be different between different cities, but here are some experiences I've had in Singapore and Japan. It's complicated and there are a lot of factors coming together. Anyway, these are my personal opinions and perceptions and I might be entirely wrong.
Firstly, I stay in Singapore. I'm primarily a rock guy. I'm not familiar at all with the jazz scene. The bar top 40s cover band scene is doing pretty well, but there's lots of competition in the scene. Acoustic singer-songwriters too. However, when it comes to the average rock band...
I'd say we had a huge boom in popularity of rock bands a few years ago. Gig organisers quickly took advantage of that and introduced either large admin fees or ticket quotas. There was a pretty large backlash and it became unprofitable. But instead of musicians getting paid to play, we just instead had a pretty bad dearth of gigs. Right now, gigs are building back up without that pay to play thing, but I don't know how it'll go from here. Ticket sales for indie gigs can often be pretty bad, and there are extremely few venues...can't blame venues for wanting to guarantee payment. I could count the number of current available venues on my hands. Quite a few venues closed down in the past few years and only bars or big and well funded places survive.
I think this has something to do with the local audiences. They're very unwilling to pay to watch gigs. And tickets here are already really cheap. I'm talking like US$8-15 for a multi-band gig or album launch. But to be entirely honest, I don't blame them. Musicians from my country seem to have a reputation for not knowing how to market themselves or put together an interesting performance. They write good music, but don't do good performances. There are a lot of deep-set societal reasons for it, but that said, the originals bands that do well do have something special about their live show to set themselves apart.
Because venues just can't make money, you don't really have a thriving ecosystem. Acoustic acts are popular with F&b venues because it's low investment for them, and acoustic is hard to hate, but rock, especially originals, is a different story. And music-only venues need reasons to survive financially. I've got good hopes for the future of live music here though.
On the other hand, for years Japan seems to have operated on a ticket quota system. It's pretty harsh, bands have to sell about us$300 of tickets minimum for gigs. While tbh I think many gigs are underpopulated, the system thrives. Venues get paid, and indie musicians see it as publicity costs. I believe it also sets a bar for musicians too, they need to be sure they can either invest the money to get more fans, or be good enough to draw a large enough crowd. And this has results. The venues have really really good sound and lights. The gigs I did there at the best venues that my "unknown foreign band" could get had systems and sound crew that could easily rival the best venues back home. And the bands there have showmanship on a whole new level. Both the venues and bands need to ensure quality to survive. It's just business. Well I'm not saying that pay to play is the only reason for the quality. But I'm sure it contributes, and forms a cycle.
Now while I don't like having to pay, tbh I must admit that it's not a bad system. Music is an investment. You invest in your gear and rehearsal spaces, so why not performances as well? No one deserves a free lunch, it's a privilege, not a right. And if you're good, really good, then you can earn back some of it. The only good argument I can think of is that it makes it harder to break in (in that case, play open mics instead...) and it should be the promoter's job.
And furthermore, when the promoter/venue pays you a lump sum, it stands to reason that they'd be less likely to take on less profitable acts. To some extent, I see this system as working against niche or non mainstream acts. Perhaps in a society where a large part of the public is willing to pay to watch non mainstream acts, it might be viable for promoters to organise gigs with non mainstream bands, but otherwise, I don't think it'll work out. On the other hand, if you see the ticket quota or pay to play system as the musicians renting a nice venue, if the musicians are willing to accept some loss or smaller profit margins for playing non mainstream music, it could keep a non mainstream scene active. I might be missing something, but that's how it honestly feels like to me right now.
One more thing: both Singapore and Tokyo are extremely crowded places. There's no such thing as a "garage band" or "house party gig". I literally have never seen a single garage in my country before. You can't just organise a gig on your own as long as you have a PA...either way, you need to obtain a venue somehow. And I think this really changes the market dynamics a lot.
Ps- a friend tells me HK operates in much the same way as Japan, and I think Taiwan probably works this way too.