Managers at Amazon.com make many different pricing decisions for products with vastly different characteristics. For example, Amazon provides cloud services to both corporate and retail clients, as well as video rental, book sales, and order fulfillment services for thousands of different vendors. It also has produced and sold some of its own electronic devices, with varying degrees of success. For example, Amazon produced the Fire smartphone, which it tried unsuccessfully to sell for the same premium price as the iPhone (eventually, it had to offer steep discounts). On the other end of the price spectrum, it has offered tablets and e-reader devices (such as the Kindle) for extremely low prices. In fact, some have suggested that these products are sold below cost. Why would Amazon's management do that? Because the company makes money on the services delivered by tablets and e-readers, such as e-books and movies. (This is similar to Google, which provides many of its services for free but then makes advertising revenue as people use its free services.) In fact, even on its cheapest electronic devices, Amazon is cognizant of its costs. Although it desired to set the target price of its cheapest Kindle at $50, the e-reader screen technology from its vendors ultimately proved too expensive to drop the retail price. Ultimately, Amazon decided it could not price the Kindle below $79.

Source: Greg Bensinger, Amazon to Release $50 Tablet as It Struggles to Sell Pricier Devices, Wall Street Journal (September 7, 2015).

Why did Amazon choose to charge a premium price for its Fire smartphone, but it chooses to offer some of its tablet and Kindle models at prices that barely cover its costs?