I guess one will eventually “prevail” and become the defacto instance for that community
Fore niche-y communities, probably. For more generalized ones (like "gaming"), I can see several communities evolve in parallel, each with its own culture and preferred content.
Well when you host your own website with your own funds, you try to not pay for unneeded perfs. But then a few hundreds people join, register, create content, upload images and videos, and suddenly your small VPS can't handle the load. And you're hesitant to scale up because it costs money, sometimes it costs time too because you need to migrate stuff, and maybe in a few days (or a few hours?) that load will disappear and now you're on a more expensive tier for nothing.
I have the cheapest Hetzner VPS (it's less than 5€/mo iirc), and I run a few self-hosted services on it. I'll try to install Lemmy this week just to see, but I don't doubt it will work without any issue.
I'm probably not going to open it to registrations tho, not really the kind of stuff I want to manage.