Even in that strawman version of the argument, competing publishers would not be able to "steal" all the profit because they also could only sell the books more or less at cost. The price floor for physical books in such a world would, I imagine, be set by some chinese on-demand printing factories. Business models for authors would shift towards patreon supporters, subscription fees for periodical releases, signed collectors editions of books, live book tours, etc. etc.
Some people also manage to extract millions of profit from Youtube and Instagram channels, despite all of the content being free. Books are not that different from any other medium.