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It's absurd to claim that Penguin intentionally capped ebook sales. Publishers will sale as many books - print, ebook and audio - that they can at the price points that they think will make them the most money. They just choose not to buy into Amazon's drive to commodity pricing.
KU has always been about mid-tier/bottom-tier authors salted with enough backlist books from name authors to entice readers to try it. I don't find it especially surprising that a major publisher would pull their books. More than anything, I'm surprised that a major publisher would have their books there in the first place. KU is indeed a niche market. Apparently the niche is big enough to make money. Good for them and good for the authors who are making money in that market space.
Even in the print market, publishers have had to deal with the discount bookstores and used bookstores. The saving grace for publishers is the rational behind their business model, i.e. sufficient customers are willing to pay top dollar for their favorite authors as soon as the book comes out rather than wait a year for the book to come out in paper. We see that in audiobook market where customers are quite willing to pay a premium for high quality audio books with high quality narrators. Music on the other hand, has long had to deal with free (i.e. radio). One sees the same difference in TV shows (consumers are use to free) verses movies. The question is does streaming movies gut the theater/DVD market. I doubt it does.
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