Why? Free shipping (I get mine free, but $80 is well worth it because I buy a lot of stuff), always 2 days shipping, excellent service and a huge variety of goodies to buy. I also have their rewards card which returns $... Free coupla hundred bucks every six months, no sweat.
I mentioned convenience as an opener to this reply, and I'll close with it. In a world wherein lots of things become more and more of a PITA, Amazon delivers easy and pain free, every day (I don't work there, so I can say that).
Some of the stuff we sell via Amazons marketplace is the cheapest on the marketplace but by no means the cheapest online. This stuff doesn't come with the same kind of shipping service that Amazon provides either, people feel safe buying through Amazon though in that the very worse outcome they can come out with is their money back.
So other sites need to not only be cheaper but also build up the same level of service and trust to get a large amount of people away from Amazon.
When I'm really out looking for something (online), I use Google Shopping to compare prices from various retailers.
And Amazon hasn't always been the cheapest. I've bought Oral-B toothbrush heads in bulk at a great price from Overstock.com
Even if not the lowest, I know that that Amazon is big, fast, cheap and I have previous positive experience with them, so most of the time why bother ?
I agree with the OP, definitely difficult to see Amazon being challenged in the short/medium run.
I wonder if people will still go by default to Amazon if they're not the cheapest.
For instance, Newegg always sells for a few dollars more than Amazon. Heck Amazon even sells for a couple of bucks less than their own subsidiary, Zappos.
I seriously doubt that Amazon's retail operation has demonstrated that they can retain customers while raising prices.
Unless I missed some news/data. Would be glad to hear comments.