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Doesn't the mere fact that people with e-readers and unlimited access to hundreds of thousands of free books (public domain as well as free promotional offers from self-published authors as well as traditional publishing houses) still continue to buy ebooks, often for $10 or more, in great quantities, show that (a) readers in general don't consider books in general completely interchangeable, and (b) the availability of free books doesn't mean authors/publishers can't possibly sell their books any more?
I mean, I've personally bought 117 ebooks for a total of $530 just this year alone, ranging from $0.99 books (promotional and/or self-published) to books costing over $10, the overwhelming majority of these being books that have been released in the last few years.
And being a fairly ereading-savvy person, I'm well aware of the various avenues of acquiring free books (legal as well as illegal, public domain as well as brand new books), so I could easily have just spent my time reading free books (public domain or otherwise). Instead, for some odd reason, both I and my friends - all educated people, all of us having our favourites among books written a century or few ago - keep buying books, mostly newer books.
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