> The blocksize increase you're describing only benefits a single individual once. Once increased and there is no more competition, transaction fees drop to almost nothing again for all miners.

This isn't true now and it hasn't been for quite a while now, transactions need to carry fees to go through because miners have another choice that you happen to overlook - they don't have to mine a transaction if they don't want to. Miners can ignore transactions and let another miner mine them. This is actually beneficial for them because it decreases their blocksize and therefore their latency. If a miner mines a block unusually quickly by chance and wants to be generous, they can include more low fee transactions but I'm not sure this something anyone is doing automatically.

So it isn't the bleak outlook you describe because mining small fee transactions isn't to anyone's benefit.