NEVER do free work at a restaurant unless it is ONE audition night!! The fees vary from locality to locality, what is good in Cincinnati OH is BAD in New York City.
To work for free tells the restaurant that you don't think you're good enough to be paid, and that is how they will treat you. I know I stole 2 restaurants away from a guy doing free just for tips by tell the General manager just that. "Hey if he is that bad that he will work just for tips, do you want HIM to represent your restaurant?" I was working there the next week for $100 a night plus tips.
I don't think that's too cool. It's good that you got work, and are well-paid for it, but to take another magician's restaurant, let alone two of them, seems wrong. Maybe the guy was fully talented and capable of being paid, but did it as more of a hobby, or didn't need the money. Or, maybe he was terrible. Either way, I feel that if you know that a restaurant already has a magician working, you should not solicit your services there. If the management is not happy with their performer, and they approach you as a replacement, that's one thing, but otherwise I say let sleeping dogs lie. There are plenty of restaurants out there that don't already have entertainers. I know I wouldn't want someone to take a restaurant away from me, especially based on what I'm being paid, regardless of my magic. I do however, agree with your point of not performing for free unless it's one audition night. Just not happy with taking work from fellow magi.