Being an author myself, I would like to comment on this.
You guys are right, most (if not all) of the time, a free book is meant to gain readers, but free books are never meant for redistribution unless specifically stated by the copyright owner. If the author/publisher says nothing about redistribution, you should assume that it is not permitted. This is the same as getting a free single at a concert...it's free but still not legal to copy and redistribute.
Personally, I give out free copies of my book, but I do state that it is not for redistribution.
My main problem is that free distribution, when not done through Amazon, does nothing for my sales stats. Sales stats increase visibility and drive sales, but if you offer free books (not through Amazon) obviously they don't count towards your stats.
And often a reader will get a free book and not bother to read it or review it, which is bad for authors. I think when a reader pays for a book, they feel a certain level of obligation to read it and not forget about it.
FYI, Amazon will not allow Independent Authors to offer free books on Kindle, but they DO allow Traditional Publishers to do this. This new trend is beginning to flood the market with free books (which is fine by me) but they are counting those free books in the sales ranking system, skewing the numbers.
This means that unless your book is free, you can't get anywhere close to #1, even if #1 is a terrible book. THis is unfair to authors, but also unfair to readers who may use the sales ranking to buy or avoid books.
I price my book as low as possible ($0.99) to get the most readers possible.
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