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1) But aren't all the best-sellers, by definition, commercial?If A is the set of best-sellers, and B is the set of high-profile literary prize-winners, then 'commercial fiction' = A - (A & B).
2) Depends on whether the definition is based only on results. Maybe it should be based on intent. Although most writers -- well, the vast majority -- are happy if their books bring in a lot of money, that may or may not play a part in their process of composition.
3) Let's try to expand on that by adding another set, C, the set of "commercial fiction" -- and here we define "commercial" as "intended to appeal to either a broad, or a deep, audience (that is, a work that appeals to either (or both): a) a lot of readers with a variety of interests; b) almost all of the people who have a very specific interest)".
So now we've got three overlapping sets, and seven categories. Hope everybody's happy.
Anyway, whatever it is, there's nothing wrong with commercial fiction, as long as it's also good writing.