One example: I purchased Rovio's Bad Piggies outright for a couple bucks way back when when there was the ad-supported version and the fully unlocked ad-free purchased alternative. Sure, my current version has all the features I originally paid for, but the experience has gone to shit.
The purchased version was a complete and ad-free game at the time. Now my version of it is filled with ads for their other games and "consumable" IAP options at damn near every pause screen, every menu and the loading screens because they made the game "free", which essentially downgraded my experience back to the free-to-play version they started with. I didn't lose any game mechanics, but I lost the ad-free experience I paid for.
I also thought it wouldn't be allowed, but apparently it is. If they just released a separate free version there'd be no problem.
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