I think there's a real issue here and that's one of sustainable pricing. There are times when companies or countries are willing to dump goods at cost or even below cost for a certain period of time in order to gain market power. That's a bad thing for consumers.

What we want is vibrant competition with many players offering low prices. However, if companies dump their products at or below cost, we may find we're left with fewer players as some companies exit the industry. Apple and Samsung are both doing wonderfully, but others including HTC, LG, and Motorola Mobility aren't in such a sunny position.

Amazon hasn't said this, but some have justified Amazon's high P/E ratio by saying that Amazon is going to be the future of retail and once they've killed off some of their competition, they'll be able to raise their margins. That may or may not be true, but such a situation would be bad for consumers. We want low prices (that's a great thing), but we also don't want to lose options and competition in the future (that's a bad thing). Amazon is running razor thin on its profits to be popular. I'm not suggesting that Amazon is evil. Rather, it seems to just be Jeff Bezos' attitude towards margins: they should be low so that people can buy more stuff. However, that attitude may not always prevail, especially if competition dies out.

It's good to make things cheaper and more accessible (as Linus has said). However, sometimes you can make something too cheap to be really sustainable. Often times large players will sacrifice profits to gain marketshare and that can sometimes be justified. Still, it's important to recognize as the play for market power that it may be and the temporary situation that it may be. A company does not intend to lose money forever. If they're able to eliminate competition in their industry, that gives them power in the future to raise margins.

It can be hard to judge an industry sometimes. Apple and Samsung are clearly going to be sticking around: they're making products people want and raking in money. However, other players just haven't been so profitable. Having to compete with a device like the Kindle Fire being sold at cost is hard to do and may drive them out of the industry. You can say, "well, they weren't able to compete" and that's somewhat true.

However, it hides the fact that Amazon may not be playing "fair" (for some definition of fair that I'll explain). Let's say (hypothetically) that Amazon is actually Evil, Inc. They have a war chest of money and are willing to lose money over the short term to become monopolistic. So, they price the Kindle Fire even below cost - $50 maybe. Some competitors will just fold. Others might try to continue competing for a short time, but their war chests are empty before Evil, Inc.'s. So, we end up with only Evil, Inc. selling us tablets. Nice for Evil, Inc. They can now charge a healthy $300 as well as up the margins on content purchases - charging higher prices to consumers as well as negotiating harder against content providers. "Ah, but if they did that, someone else would come in with a $250 tablet to compete!" Probably not without government intervention. Why? Because they know Evil, Inc. will temporarily drop the price on their Kindle Fires until the new company goes bust.

That's an exaggeration, but dumping products like this isn't unheard of. The more people that get Kindles, the better Amazon's market power is over content providers and consumers. Similarly, if the margins become so low that many companies can't create devices, we end up with them exiting the market and competition is reduced. The fewer competitors in the tablet market, the better it is for Amazon long term.

Basically, we want competition today AND competition tomorrow - sustainable competition rather than one or a few companies winning. We want prices at a point where they're low, consumer friendly, and encourage wide adoption while making sure that 5 years from now, we're benefitting from similar low, consumer friendly prices. If we're left with only Apple, Samsung, and Amazon, we'll be worse off.

It can be hard to think about. In some ways, we might see a company like Amazon as winning by providing things cheaper in a way that's good for consumers. However, we don't want Amazon to win - we want others to be able to match Amazon so that Amazon will have to keep innovating and competing in the future. At the same time, we want the lowest price. It's a balance similar to investing in the future (or taking on debt). We don't want to starve ourselves now (we want to enjoy our lives). At the same time, we know that we shouldn't just rack up debt in the present having fun because we want a strong future. We don't want to pay high prices for devices now, but at the same time we don't want one or two companies to come out as the survivors of the "tablet price wars" who can then charge us more money now that the competition has been vanquished.

* I know I picked on Amazon a bit here and that's just because the Kindle Fire is being sold at cost below the competition. I'm not saying that Amazon is evil, but even in the absence of evil, we wouldn't want Amazon to win because competition brings innovation and discourages slacking off. Even if you're a good company trying to do positive things, seeing what others are doing makes you better. As such, even a purely altruistic company is bad as a monopoly.