It's true that businesses can be built on selling a loss-leading product and making it up on related items and peripherals. Sometimes it works, sometimes it doesn't. As has been observed, it drives the printer business.
In the eBook business, I think Amazon is doing two things. First, they are doing a bit of introductory pricing. Their best-seller pricing is a bit of loss leader stuff--$10 for a book that probably costs them more than $10. Whether they sustain this indefinitely is hard to predict but the loss leader market works best when you give away the razor and sell the blades, not the other way around.
I think, though, that Amazon has realized something important, which is that they can make excellent money taking a 20-40% cut (and passing the savings to the customer) rather than the 55% cut they take on paper books. With paper books, there are huge costs of handling. With eBooks, their existing transaction software pretty much handles everything. Since they discount many paper books, I don't think it's a huge surprise they discount eBooks, but it surprised me they discounted them as heavily as they do.
Rob Preece
Publisher,
www.BooksForABuck.com