One reason may be the same reason Apple don't sell a truly low cost, budget iPhone. Some people who can afford to spend more, and otherwise would spend more if their only options were more expensive Amazon phone, would buy the cheaper model. That's revenue you just threw away. If there is a premium market for an Amazon phone, it makes sense to cash in there first.

Another reason is that this may well be Amazon's budget smartphone in 1 year, 2 years or 3 years time. Pay one tranche of development costs now and ride the economic price curve down to lower production costs and higher market penetration.