Don't know much about Baen Books to really comment. So you're saying they show that offering the same product for free does not sway people who would otherwise pay for that product to download the free copy instead?
More or less. Eric Flint and Jim Baen wrote a good bit on it. Baen in particular was rabidly opposed to DRM. So much so that when you get an ebook from them you get it in RTF, HTML, and in three different ereader/pda formats, but not PDF.
1. Which products do they sell and offer free at the same time?
It changes based on what's in their free library and what wound up on the most recent CD. There is a lot for free and a lot for sale. Most of the stuff that is both is from the CDs which you can acquire for free from the internet or buy from them. They have found that giving ebooks away for free or cheap drives up new hardback and back catalog sales.
Free library:
Baen Free Library
One of the CD sharing sites:
baencd at the Fifth Imperium
Their storefront:
WebScription Ebooks
2. What kind of books do they sell? (Mainstream or Independant?)
They are a scence fiction and fantasy house, but they're a mainstrean publisher. They've published works by Poul Anderson, Larry Niven, Jerry Pournelle, C.J. Cherryh, Andre Norton, David Drake, Eric Flint, David Weber, Spider Robinso, Mercedes Lackey, S.M. Stirling and others. They are independent in the literal sense, they're not publicly traded or part of a conglomerate. This has something to do with their success.
3. What is the business model? (Is it a "pay what you think it's worth" type of thing?)
Pretty standard, other then the amount they give away and the prices of what they sell. Most ebooks are $6.00. Ebooks whoose hardback came with a Baen CD entitle you to an ISO of said CD. ARC are available for $15.00, and every moth there's a bundle of numer (or, rather, about a third of a number) of books that well be relesed in a few months for $15.00. They sell paperbacks and hardcovers through normal channels as well. Ebooks are DRM free and available in six formats, including RTF and HTML.
4. Do they do a lot of business, or are they a pretty small copmany? (With a limited but loyal client base)
According to Wikipedia (citing Locus):
In 2005 Baen eighth most productive publisher in the genre, with 72 books published (of which 40 were original titles). It was the sixth most active publisher of the dedicated SF imprints, and the fifth most popular SF publisher based on the number of bestseller list appearances.
Baen Books - Wikipedia, the free encyclopedia
They also give free paper books to soldiers and free ebooks to the disabled.
For some more in depth discussion, see Eric Flint's essays at the free library and as editor of Baen's magazine.
Prime Palaver Index
Authors | Eric Flint | Jim Baen's Universe
In particular, this essay:
http://baens-universe.com/articles/The_Problem_is_Legal_Scarcity__not_Illegal_Greed
And this one:
http://baens-universe.com/articles/Foam_and_Froth_and_Mighty__Upside-down__Pyramids