WSJ actually just published an article on how Amazon is frequently underpriced by other sellers: http://online.wsj.com/article/SB2000142412788732342380457902...
There's no one seller that is consistently the lowest price. But Amazon is consistently the slowest in shipping.
It isn't free - the cost of the shipping is baked in the product prices. Walmart's threshold is $45 for no additional charge, shipping to one of their stores is no additional charge, and below the threshold shipping is usually 97c.
In any event this isn't about "can you pay more for faster shipping" which is the case virtually everywhere, but that it seems like Amazon is holding back on their lowest tier before the actual shipping which none of their competitors seem to do.
There is an obvious benefit to them in Prime upsells. Actual logistical reasons seem at odds with the story about huge spending on warehouses.