They sell hardware at a loss (dumping) to try and drive customers to their market and away from competitors.
They increase market share by being allowed not to charge sales tax and by letting their company profits dissappear so that other retailers, who have to charge sales tax and not operate as a non-profit, are predatorily run out of business like Borders. Its a great business model. They have a 6%-7% pricing advantage because the US Government is too stupid to see what this monopolist is up to.
Maybe. The US Gov't may not see it for what it really is, but Apple, Google, WalMart and Target do. And, the US gov't has opened the door for Apple and Google (who have enough cash to survive for years without 1 penny in revenue) to go directly after Amazon lifeline. All the pumpers cheered the ruling against Apple on content pricing by DOJ. The reality is that it was bad competitive strategy on Apple's part anyway. It makes its money on the hardware. It now can sell the content as a loss leader and Amazon's entire content profitability model is hosed. And, Apple can open up its device network to self-publishing at lower rates than Amazon. Of course, all of this also applies to Google, except that Google will also be stepping up the war on AWS.