At the time of writing, Amazon.com offered Prime, a bundle that includes free shipping on consumer purchases, discounts on groceries, as well as video, music, games, and books, at a price of US$119 per year. The price of the Harry Potter paperback box set was US$50.33 with free shipping.

(a) From the viewpoint of an Amazon Prime subscriber, compare the mar- ginal cost of buying the Harry Potter box set from Amazon vis-a-vis a competing retailer that charges for shipping. (b) Suppose that Amazon Prime subscribers are subject to the sunk-cost fallacy. How would that affect their demand to buy products from Amazon vis-a-vis competing retailers? (c) By default, Amazon has set membership of Prime to automatically renew. This auto renewal takes advantage of a behavioral bias. Explain which one. (d) Considering your answers to (a)(c) above, explain how the Prime ser- vice gives Amazon an advantage over competitors