This is a great question.

If you did not copy any code from the other addon, and the source library is open source and not explicitly licensed, then you can release your version of that addon however you wish.

Having said that, it kinda depends on the developer and the addon regarding etiquette.

If the developer sells large sums of that addon...they will not be happy. If they don't, it's likely they wouldn't care.

Something I have seen done and I for one appreciate, is when an addon with some basic features releases for free, and then at the bottom of the products page they may state something to the effect of "if you need more powerful features, please check out X addon" with a link to that addon.

I find this to be very considerate and well received.

ChadStrat

As Chad says, it really depends on the developer and how much work they have put into the addon you will be competing with. If you had a paid addon in the marketplace that you had invested a lot of time and effort into developing and supporting, how happy would you be if someone took your ideas and released a free spoiler?

On the other hand, if it is something that is a minimal wrapper round a jQuery plugin that is MIT licensed, its not as if anyone has exclusive rights to it.

Maybe ask yourself, would you have thought of creating your addon if you had not seen the existing addon first?