IOMX
Your misconception is that there were too many flights to LGW in the past to make LCY/LHR work. In reality, there were too many punters choosing LGW over LCY to make LCY work, not too many flighs to LGW. If LCY was as popular and sought-after as you want us to believe, it would have thrived at the expense of LGW. The fact that it did not shows us that there are simply not enough passengers willing to pay a premium to fly to LCY or LHR. What you actually expect is government intervention by dictating airlines what routes and frequencies they can serve.
M-JCS
It does not stop airlines like Sun Air operating from LCY with 30seaters. It does, however, stop operating airlines with small aircraft offering return flights for 150-200 GBP (at least without subsidies) - which apparently some here regard as the upper limit for a ticket price from IOM.