As a publisher, I can tell how that works. Manufacture's Suggested Retail Price basically sets a variable for how much the retailer can keep from the products they sell. I set my book at $25 which is a typical price for a hardcover epic fantasy with a dust jacket, but Amazon only has to pay my distributor half that for any sale. Out of the $12.50, my distributor pays shipping cost (which is better for bulk naturally to Amazon for stock, assuming Amazon orders to keep stock -- they don't always do that but they want the option), sales taxes as appropriate, and their own cut for profit (from which they then pay various other taxes related to businesses). I get $6.50, if I recall correctly (it might be $8, I don't recall exactly. I don't get enough sales to remember.
) From that I pay my own income taxes as appropriate. If someone else had written the book, or if I had a staff, I'd pay a certain percentage from that $6.50, after taxes, as royalties to the author, etc. Amazon gets permission to charge up to $25 per book, and so they can keep up to $12.50, but they can discount up to 49% and still make some kind of profit on it.
