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I honestly don't think they have a choice. Especially due to the AI. A lot of the immersion-breaking simplifications are justified on the grounds that the AI being too dumb to not have cheats and railroads.
Now, could Paradox theoretically just fix that with more focus and elbow grease? I guess. I think this is an actual hard problem. As you point out: they're in a niche. Maybe it's for a reason.
And, tbh, even other Triple-A strategy games - despite being less complex - have serious problems with the AI. Total War has good enough tactical AI but I've always heard complaints about their strategy, for example.
The problems with Total War's strategic AI are real, and always have been a problem. As a player the main issue I would run into (not as bad in more recent games) is that the more powerful I got, the more likely people would declare war on me. Which made no sense: tiny kingdoms on my borders, instead of looking at offers of trade deals and non-aggression pacts with their superpower neighbor with relieved enthusiasm would instead spit in my face and boldly declare that they would crush me beneath their boots! After I inevitably rolled them up into my empire, the tiny kingdoms that neighbored my now expanded borders would do the same. It made no sense, but it did keep you in a constant state of warfare through the late game. Since the focus of the game is on battles, I could see why it stayed broken in that particular way for so long.
In more recent Total War games they've improved it a good bit, but more importantly they revamped the diplomacy system to make it transparent: you can not only see how much another power likes you, but also see exactly why they feel the way they do: disliking Great Powers is -X, you fighting their enemies is +Y, etc. The transparency means that you have less moments of saying "What in the world is wrong with these people? Why are they acting this way?!" Now you know exactly why, which means you can make more interesting diplomatic decisions.
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This argument has never really held water with me, those other games have a lot of other things to sink their budgets into, paradox games do not, the AI and how it handles strategy is the game.
Paradox are just cheap and know they've cornered a niche market and are content to put in the minimum amount of effort they need to continue milking the whales that buy their dlc.
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