It doesn’t work that way. The permissions are handled based on the share used to access the file. In other words, it’s not that the folder’s permissions overwrite the file’s. They simply aren’t in effect.
If you share a folder, and then also share a file in it with its own link, the permission you have is based on which link is used.
If I’m not mistaken, the same concept applies to things shared directly with a user instead of with a link. Each individual “share” has a set of permissions attached to it.
I tried to share a file in a folder (Epic Public) for group ‘Epic’ with all priv by selecting the same group only disabling all permissions. That didn’t work. Tried file access control, too general.
So will have to create a folder in the Public folder called ‘No Edit’ or ‘Read Only’ and put files restricted to read only in there.