Yep. Basically, they're buying exclusivity.
Twitter recently bought Atebits, which produced the Tweetie 2 twitter client for the iPhone. Previously, Tweetie 2 was a $2.99 app. Upon acquisition, Twitter released an updated version, renamed it simply "Twitter", and gave it away for free.
You should see some of the negatives reviews that were left. Much wailing and gnashing of teeth, some of it angry that they paid for something that became free (ignoring the value they received in the meantime), but a lot of it sounding like, "I paid for this app because not everyone had it, now anyone can get it? Lame." (That's almost a direct quote from one of the complaints.)
Exclusivity is a tangible item to some people; it's what makes collectors spend ridiculous amounts to find that last item for their collection, or buy $24k Rolex watches. I might personally think it's ludicrous, but there you go.