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IIRC a big problem with delivery drones is that their payload is limited by the damage that would be caused should the payload go into freefall. Going higher would just increase the ground impact speed.

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I'm more worried about impact on people for which there should be at least a parachute where the higher altitude would give the chute more altitude to open. Also it should be cheap and easy to put something on the payload to slow its decent - like a maple seed.

Not really, the terminal velocity will limit it soon. The reason for the 400ft is more that general aviation is permitted from 500ft upwards (well, they must keep 500ft clearance from ground and buildings in all directions) and they can't coexist with drones. Especially automated ones.

Also it can be mitigated by the shape of the shell, have a parachute etc.

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