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Sgrener: I'm confused by your answer. It is true that Amazon also faces expenses, but as we all know, bookstores' costs are higher than Amazon's, which is why they aren't able to price-cut as much. What your examples prove is that Amazon is willing to take losses in order to gain market share... or that for some reason, Prime is actually profitable. In any case, Amazon's inner workings are pretty much a mystery, and so I don't think it's helpful to compare e-commerce to brick and mortar commerce.
It is theoretically true that you can become profitable by selling enough units if your price exceeds your marginal cost. However, I seriously doubt that B&N could do this. I think the volume of what they'd need would probably exceed the total amount of books being sold in the US. In other words, I don't think anyone in the industry believes that B&N would have a prayer of survival if they price-matched Amazon and challenged them to a price war on all of their inventory. They don't even price match bn.com.
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