Governments on the other hand would pay lots of money to increase their mass surveillance capabilities. Signal users are disproportionately young, sophisticated, and politically engaged.
Given that Signal's budget is raised from donations and grants, and is much more fixed than an open market to undermine it, how would such a market incentivize them to increase funding on security? It's already their top priority.
Are you suggesting that the developers would put in a vulnerability on purpose, in order to sell it and collect the payoff?
Because, short of that, I can't see how exploit trading incentivises weakening of systems. It just incentivises people to find weaknesses.
The extra thing that a free market does is incentivises people to find weaknesses and sell them so that they can be maliciously exploited. When vulnerabilities are exploited instead of patched, secure systems are by definition weaker.
Additionally publicity generates incentive to fix the problem. More apps/OSs/libraries will try harder to be secure. Apps could start wearing high exploit bounties as badges of honor.
Much like how ransomware likely has increased security more and changed user behavior than an infinite amount of suggested security training. Some users even gasp ask about how to protect against ransomware and as a side benefit actually protect against mistakes, dying disks, and other flavors of malware at the same time.
Seems better to trot this kind of stuff out in the open than to hide your head in the sand and try to hide security problems from the public.