This is exactly the Prisoner's Dilemma, and also shows up in arguments why we need to build insane numbers of nuclear weapons. The logic rests on a faulty assumption that there is a binary choice - either you build it this way, or somebody else builds it this way. It doesn't consider any other possible paths that could lead to better outcomes.
There is an economic incentive to build it this way - for all the legal, and illegal applications it may be used. Movies can make stunts look more like the actors they portray more easily (this has existed for decades now), you can pay Tom Cruise to use his likeness on a publicity campaign without having to pay for his time. You can change your face, or your body, so you are not recognized.
It's a virtual certainty that a technology that can have a commercial application will be developed. I can't imagine a plausible path departing from this present where it isn't.
