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Amazon may have been willing to take a loss today as a means of gaining market share tomorrow. Last I heard 90% of all sales in the book selling industry were from 10% of consumers. Capture the early adopters and Amazon might have captured the lion's share of the ebook consumer market.
Also keep in mind that the issue here was only partially about profit. The other aspect was who was going to control pricing. Dune, by Frank Herbert, has a line I remember: "He who can destroy a thing, controls it." (I could be misquoting it, but that is how I remember it.) If retailers were allowed to set prices it would wrest control away from the publishers.
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