While that makes sense in a generic, economic theory, this isn't how Amazon has operated. Ever. So I don't see why you're picking this hill to die on.

My money is on Amazon doing what they have always done: compete with wide selections and the cheapest pricing possible while using Whole Foods to bring their Fresh delivery service to far more markets at a higher efficiency.

I agree with this. It's gotten to the point that when I need something I buy it from Amazon, with the only exception being food. And that last part might change.

I'm already buying everything I need from Amazon other than food... and since Amazon Fresh I've been buying food once per month, sometimes twice per month, as a Friday morning "no shopping trip for this weekend" move - in fact I spend less than I would have at Harris Teeter based on past experience.

I would have done this with Peapod etc but their website was lacking in 1) choices (Amazon will get you pretty much any food item) and 2) delivery window and 3) unattended delivery

Amazon as a company believes margins are an opportunity, either for them, or for someone else. They don't believe in raising prices unless forced to by something external. You aren't correct here, they believe in making money on volume and breadth of services / products.