He claimed Amazon could watch what sold and for how much, and then after some months would sell the same stuff.
He called his Chinese pal who ran the factory and complained about his pal selling to Amazon for less, and his pal replied he sold cheaper to Amazon because they would buy bigger lots.
So maybe that's illegal, or just better business to find a cheaper source and sell for cheaper
It's not illegal to offer discounts for higher volumes.
Yes. Amazon is not just competing with Walmart, but with all the small businesses they encourage to join them. Your example is cited frequently by sellers on amazon.
They find a product, or work with a factory to make something. They are successful. Then they find amazon is competing with them on the same listing, selling at a loss even for a while because they can. Amazon gets the buy box, and the original seller is relegated down to the little-seen "other sellers" box on the page.
If Amazon is competing directly with an Amazon Seller the listing will say "Shipped and Sold by Amazon" in the Buy Box. If this is the case the vendor was contacted by Amazon and invited to join Amazon Vendor Central. Under this arrangement the vendor sells directly to Amazon. The vendor has no control over pricing and very little control over the listing.
Trust me it is expensive to sell on Amazon, even more so if you want them to fulfill your orders (to be "Prime" eligible). Far more expensive then eBay, or running your own site.
"Expensive to sell on Amazon" is relative, of course. Yes, they do have a hefty fee structure. They are also the largest store in the world. It's the old adage--"Do you want 50% profit on 100 sales or 35% profit on 1,000 sales?"
As to your profits being less if you have Amazon fulfill your orders (Amazon Prime) that depends on the product. Shipping cost is the controlling variable. Products that weigh less than 1 lb. might be more profitable if done seller fulfilled. Products that weigh more than a pound and are being shipped more than several states away are probably best having the shipping handled by Amazon.
Of course, if you are shipping your own product on Amazon there is a 99% probability you won't have the Buy Box since the number one factor for gaining the Buy Box is that the product be a Prime product. And if you don't have the Buy Box, you're likely not going to be seen.
As to it being cheaper to sell on your own website or via Ebay, better check your shipping costs before you declare this to be true. Again, if your product weighs less than 1 lb., you might be better off. Otherwise, it depends on the profit margins and how much work you want to do with order fulfillment, shipping, processing of returns, credit card processing, sales tax, etc. etc.
In my case it's more profitable to ship product to Amazon's distribution centers and let them do all of these tasks.