Why wouldn't 7. be: a competitor easily enters the market because they can just make the good and charge a markup that's somewhere between what amazon is charging and 0 and still make a profit and get all the business?

If what you said about amazon having less overhead prevents the above hypothetical from happening, then what's the problem? It's apparently more efficient for Amazon to supply this good and that's what an omnipotent benevolent economic dictator would choose anyways.