They could do what, exactly? Slash their prices and run themselves into the ground? Who knows how much money Amazon is sinking into this venture and running it at a loss, hoping to make it up in other areas.

There's no way "free shipping" isn't costing them a mountain of money, but they can just blend it into other operational costs. Logistics companies make all their money on this stuff, they can't afford to subsidize.

For FedEx to do Amazon a "favor" by matching prices is suicidal. It sucks they lost the business but there's nothing they can do.