No, I know for a fact it is not true. Look at literally any modding scene, look at the good and popular mods. First of all, they are free. They are good because people do it as a hobby and they do it for themselves, first and foremost. They want to shape the game into something they enjoy more, that is why they mod.
Introduce monetization into the equation and anyone who wants to monetize will aim to quickly put out content they can monetize. That is the polar opposite of investing a lot of time into high quality content.
Strange of you to reference Arma 3, considering there are no paid mods for that and it pretty much requires a healthy modding scene. Stranger yet, considering the franchise would be far from where it is now if it wasn't for the DayZ mod which essentially popularized a niche game barely anyone knew before. BIS endorsed it by specifically making a free or cheaper edition (can't recall) of Arma 2 which had everything to play DayZ and then advertise OP Arrowhead which improved textures in the mod. For many people it turned out Arma itself was an actually good game, too.
Look, I don't know why you don't remember, because it wasn't that long ago when Bethesda did this exact thing on the steam workshop. They gave modders the option to monetize. Some did, some did not. Many took other people's mods from the nexus, uploaded them to the workshop and monetized them. A tear went through the modding community because it became obvious how some members of it threw ideals out the window for a few steambux. Also can you imagine how it must feel if your content you made for free and uploaded for other people to enjoy is monetized by someone else? How exactly will you prevent that? People would have to copyright their mods, this goes against the very premise of mods and would also be illegal, since it is assets for a game already copyrighted. So you would have to heavily moderate the steam workshop and if someone claims they originally made a mod that is now monetized YOU have to choose to believe them or not to believe them. What if the person monetizing the mod changes it ever so slightly before they monetize it? Do you take it down or do you leave it?
Free market basics? What the fuck. Free market economics is the cause of planned redundancy, lowered quality to increase profit and outsourced labor. Please do not drag actual economics into this.
Again. If I buy a mod for money. Actual money. I am entitled to a working product by law. Should the modder decide to stop updating it, for whatever reason and however unlikely you may find that, who guarantees the product keeps working? Who do I get my refund from? What if someone monetizes a mod which is not theirs and it is taken down? How do you get my money back? Why should they keep working after they've received x amount of money?
I am not interested in arguing about how to do PR, that certainly does not work in a public forum. What I am trying to convey is that this is not just a moral nightmare, it is also a legal one. Make sure your legal department understands how the steam workshop works, that there are other sources for mods and how many claims they could be dealing with.
Bethesda ran into all of these problems, combined with a very justified shitstorm. As of now you are on the same course, that is why the comparison came to mind. Modding is a passion, not a profession and that is what shapes it and gives it its potential. If that doesn't convince you it's a bad idea, think of how much this will damage the game's reputation.