1) Everyone and everything is subsumed into the forest. Innovation becomes unprofitable for the innovator as the one who controls the forest uses their capital to clone every new innovation.
2) Everyone withdraws from the forest. Innovation goes private. The forest stops growing, but doesn't die.
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But there's two things the post doesn't consider:
1) Viral licensing.
What happens to a model if it is trained on data that comes with a license? What happens if the laws that be decide that the model producers, the models and the products of the models themselves must follow the conditions of the licences. How will that affect the model producers? What if customers don't want to be beholden to those licenses? What happens if the conventional wisdom is to avoid models to avoid lawsuits? What happens when models, model producers and customers power lawsuits against (other) model producers? Where would the new equilibrium between model producers and innovators move to?
2) Non-profits models
What happens to model producers if customer shift to become non-profits themselves, specifically those that pay employees instead of model producers. Would the model producers become starved out? Or would they need to switch to non-profit status as well? How would model producers, the models and the forest as a whole change if profit no longer became the priority?