Not sure of the product, but I sounds like a loss leader set-up to me. He could be just cutting the throat of a competitor on sale price and on shipping, just to take his market, then he is playing on generating other sales with where he can make margin on the extra generated traffic.
It's a proven marketing tactic, and one that can be extremely effective at taking you competition out, but it can come down to how deep your pockets are at times, especially if the loss leaders aren't generating the anticipated rise in over sales from the increase in traffic.
It works like a all you can eat buffet lol
There is always a selection for you, most are cost effective for the seller, but there is usually a few dishes that aren't. You will always get some going and filing up on the big dishes, and the seller takes a hit on these customers.
Where he makes his money is on the averages, where most people will choose a selection of the more profitable food options.
Crazy analogy I know, but when you throw up a loss leader strategy, you'll always lose money with some customers. Some just snapping it up and running, while other stay and grab something else, or at least come back to shop with you again later.
You are hoping that the averages work in your favour!
Of course if we are talking about an inexperienced seller here, he could just well have no idea and be losing cash hand over fist lol