This customer service model, where the CSRs go above and beyond to help the customer with as little hassle as possible, is what built the initial customer base for Newegg. Those customers have largely remained loyal even though other online retailers have caught up in price. This is also what made Zappos very popular (eventually bought out by Amazon). So the strategy clearly works. I assume Amazon has calculated that the number of frauds is greatly outweighed by whatever business is generated from returning customers and great PR.
Your model should be made more dynamic, to include that Amazon can adjust to new fraudulent methods. Once a method is discovered for making fraudulent purchases, it will be reused and broadened. Like the story of the Dutch boy and the dike, it will get larger and larger until it collapses. Amazon no doubt figures that they can plug the hole early enough, and reports like this are part of that detection system.
