If you push the block size upward, there is little change compared to today - individual miners still choose what pool they direct their ASICs to. It cant be any worse.
Well, while I'm not sure what might happen with mining I'm certain that the number of nodes will shrink or the concentration in datacenters will increase. This is not good.
On the other side with artificially keeping small blocks, unable to use onchain Bitcoin transactions is definitively increased centralization, as users have to use centralized offchain solutions (similar how bank or paypal works).
Completely wrong:
1) On-chain remains decentralized (nodes are cheap to run).
2) Decentralized second layer solutions will exist (LN).