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I'm a Kindle user and I'd feel comfortable saying that I believe the majority of people reading on e-reading devices prefer a small first line indent and very little to no space between paragraphs.
In these cases it's all about screen real estate, so the more of a page you can fit on the screen, the better. Especially when you've got two characters having an ongoing conversation, all those extra blanks on the page seem kind of wasted space.
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