The main assumption is that hashing power can be switched on/off.
There are some possible futures where there could be a market price
- Electricity costs dominate
- Altcoin based hashing power market
If there are multiple altcoins and mining pools which aim to mine on the most profitable coin, then pools would switch large amounts of hashing power based on profitability. The hashing power would target other altcoins which transactions build up on bitcoin and then suddenly the hashing power would increase.
If ASICs are cheap but electricity is expensive, then switching off hashing power might be worth doing.
The paper assumes that the switch is proportional to the total payout. In a market, there is a market price. If the fees paid out by bitcoin are less than market price, then they get zero hashing. Likewise, once the payout goes above market price, the coin gets hit with massive hashing power.
This doesn't weaken the paper's assumptions, if anything, it makes them much stronger.
I don't think any of the current swapping altcoin pools do sub-block switching though. Altcoins are generally dominated by subsidy, so it isn't worth it.
The difficulty decides how expensive a block is to produce. This means that when transaction volume is low, fewer blocks would be produced. It could force the blocks to 10 minutes per block, but only if fees per minute is constant.