Option 2, which traffic engineers recognize as the safer and more efficient practice. See for example this video from the MN department of transportation.
Early merging to be "courteous" makes no sense; effectively, you're just moving the point at which one lane is out of commission back to the point where drivers choose to merge, so the reduced-lane stretch is longer, which creates a longer traffic jam. It's worse for everyone.
Yes, but people in the continuing lane will have this mentality of "I'm not going to just let him cut in front! HE SHOULD HAVE TO WAIT!" and you're stuck at the end of the lane forever as other people blithely disregard you.