the question was: what is the endgame for the stated "second class labs" strategy of distilling their frontier competitors then undercutting them on price?
Yes yes, we all understand the game-theoretic race-to-the-bottom you're describing here. Somehow despite linux being FOSS it still powers most of the important computing in the world. Can you explain how that works despite it being free? Once you understand that case I think you'll understand the game-theory behind how large projects can exist in the absence of traditional IP protection.
and what will fund these budgets exactly? inference is cheap, distillation is cheap, training is what's expensive.