Standard game theory cannot describe microbial interactions mediated by diffusible molecules. Nevertheless, we show that one can still model microbial dynamics using game theory with parameters renormalized by diffusion. Contrary to expectations, greater sharing of metabolites reduces the strength of cooperation and leads to species extinction via a nonequilibrium phase transition. We report analytic results for the critical diffusivity and the length scale of species intermixing. Species producing slower public good is favored by selection when fitness saturates with nutrient concentration.