This is not the free market, it’s a perfect example of what’s wrong with government. The fact that the IRS rules are set by politicians and bureaucrats, not accountable to market forces, are what allows this corrupt situation to persist in the first place.
You can’t say “the IRS makes this too complicated in order to funnel money into Intuit’s pocket so I am going to pay my taxes elsewhere.”
And it's a perfect example of why accepting broad government power provides an avenue for this sort of corruption to exist, especially in areas that people don't care enough about to spend time influencing government policy.
In a free market, it requires very little effort for you to make your opinion felt - you give your money to the people you think have the best product. Done. Those people see that they are making money - the people with lesser products see they are losing money. This requires very little effort on your part other than forming an opinion on what product you want to use.
In the government, what can you do if you think the IRS is doing a shitty job? Write a letter to your Congressmen? Vote for another Congressman in 2 years (what if you agree with their position on the IRS, but disagree on something more important, e.g. guns?) Run for office yourself?
The result is that relatively little attention is paid to public policy around tax preparation. There are no single-issue voters around IRS Free-file policy. There is too much else going on in national politics that is inarguably more important. And because no one really cares about this other than the tax preparation industry, the tax preparation industry is left largely unchallenged in pushing government to enact regulations that favor them.