On Second Thought...

I think the definition of "transformative" needs to be examined and/or revised. To transform another author's work, all one must do (imo) is write something that the original author would clearly never have done, for example homoerotic stories about Harry Potter and Draco Malfoy. This addresses the "impact on the market" query in fair use in two ways. First, it is clear that such stories would never replace the demand for the source work. But even more importantly than maintaining the flow of money to the original author that presumably forms the impetus for writing in the first place (eyeroll), such stories _expand_ the market by providing new material that otherwise would never be created. This increases innovation, which after all is the reason why the bill of rights allowed for copyright and patents to restrict the freedom of the press/speech, a freedom which otherwise was supposed to be infringed by no law.

I'm really tired and sorry that the above probably made no sense.