> But Firm A now has a tough problem. If it sells for anything more than $5, another competitor might enter. There is no reason to think that another competitor

> But Firm A now has a tough problem. If it sells for anything more than $5, another competitor might enter. There is no reason to think that another competitor couldn’t match the $5 average cost. And there is some reason to think that its cost could be lower than $5. Why? The new competitor could buy Firm B’s assets at fire-sale prices, thus reducing average cost. Ah yes, the mythical world where the assets of an enormous but deteriorating corporation are just sitting around on a shelf for purchase by any plucky entrepreneur with enough vision, bootstraps, and good old American sack, who will of course be able to restart the whole enterprise immediately, and, having purchased the whole thing on the cheap, will have so greatly reduced average cost that they can immediately call the predator's bluff and restart the same price war, this time with the upper hand and victory in sight. Of course this argument makes no sense except in a world of spherical cows and perfectly rational actors. The more plausible argument against Amazon operating their logistics business at a loss is the obvious fact that they have invested enormous resources into squeezing efficiency out of their logistics business, to the point of being now-infamously abusive of their delivery drivers and warehouse staff. Keeping marginal cost as low as possible clearly matters a lot to Amazon management. What's more likely is that they have invested in keeping marginal cost down specifically in order to run their logistics business at a very small but positive margin and still compete on price in order to establish and maintain dominance and high volume. Don't forget that they are also skimming value off of several points in the e-commerce lifecycle, basically at every point except actually charging customers for shipping, but that's probably more than offset by all the Prime accounts that people renew every year but never get their money's worth out of. Then again, this is just speculation. I haven't actually looked at their financial statements, and maybe someone with more finance expertise can weigh in on whether there's anything more to be learned there.