More about this "free market": if it cannot pay for decentralization then it cannot afford more utility. THIS is the negative externality that gets hand waved away by Peter.
OK, let's assume for a second that a negative externality exists (although I disagree). What can be done about it? It requires
force to keep the production quota below Q*. How could a group do this over the long term if the code can so easily be forked?
It requires consensus that's all.
Nodes run the consensus
rules. If some market for transactions cannot subsist under those rules he is free to find an alternative. You do know Bitcoin is not unique? We are talking about a market for monetary transactions. If it cannot pay for Bitcoin security there will forever exist other means of exchange fit to serve it.