In what world is pricing a digital version of a book slightly below its dead-tree variant "undercutting"?
This is not publishers shutting out Amazon, this is publishers shutting out digital books, and they have been doing so all along, consistently pricing ebooks at the same or higher price of print copies and colluding with Apple in a price fixing scheme.
It has one thing to do with it: it sets the price floor. If the market value of that book is not past the price floor then there's no point in making it.
But some people who don't get how markets work think prices are: how_much_work_I_did+how_much_materials_cost+profit_amount_I_want. It's not. The item is priced based on the value it is perceived to provide.
The equation you just posted is the seller's value equasion. That's how the seller measures value in order to price the goods.
Things are priced by the buyer according to perceived value also, but using a different equation. a sale occur when the two points close enough that either or both parties are willing to adjust their price point to make the sale.
The seller "prices" the goods at marginal cost + profit. The buyer decides if there is enough values at that price for her to make the purchase.