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It may be the case that Amazon is loosing $2 on bestsellers, but it isn't loosing money on backlist ebooks or on specialty categories and these are a substantial fraction of total ebook sales. In any case, as others have said, Amazon can afford to loose money on ebooks for years if necessary to gain market share. However, I'm not sure they would be willing to do this now that a large fraction of sales are presumably going to iPhone or Kindle for PC readers. Amazon's margins on the Kindle 2 and DX have to be much higher than 20% given that they are selling direct.
My best guess is that Amazon is making a huge profit on Kindle hardware and are close to breaking even on ebooks.
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