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I've never had to return a Kindle but everything I've heard about Kindle Customer Service is glowing. Glad that you had such a positive experience.
I do think it's enlightened self-interest in part, not just selflessness, because if you're reluctant to buy an [expensive] replacement then Kindle/Amazon potentially lose a ton of book sales, if not your purchase of newer, shinier Kindle models in the future. Whereas this one act of generosity can ensure customer loyalty like nothing else! It's definitely a win-win for both Kindle and their customers.
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