You will get sales at the price you set, so long as it is the lowest price. This can't really be stressed enough. It is the business model and it works as long as you have what you say you have in stock, actually in stock (if you haven't, you're in for a whole world of hurt).
As I've mentioned before (repeatedly) the cost of sending a standard CD, packaged in a way to get it there in one piece will cost you £1.20 (second class) or £1.27 (first class), which - and I think I might have commented on this before, y'know - fits conveniently closely with Amazon's default postage rate of £1.26 per CD. NOT THAT THERE'S ANYTHING GOING ON THERE. OH NO.
But that's largely irrelevant, as the large resellers are sending out hundreds - or thousands - of such packages a day, which means that - unless they're very stupid - they will have negotiated a postage discount (almost certainly with the Royal Mail; they have the infrastructure in place to do it whereas the others would struggle, I think) based on volume. Depending on the quantity that they send out each day, they'll get something between a 25% and 40% discount on their postage if they can demonstrate that they're sending more than about 750 - 1000 packages a day. A postage sticker has to be applied, sure, but it's not a conventional stamp, it's really just a barcode that confirms valid postage (with the requisite discount). Plus the Royal Mail will come round to their place of business to pick up the packages, as an added bonus.
It's the world in which we live. It makes sense on both sides; the Mail get to control the flow of post and the reseller doesn't have to piss about with individual postage and all that stuff. But it does skew heavily towards the big players and it certainly sheds light on the overall business model of the big resellers. They can make something like £0.50 a CD by selling at £0.01, simply through maintaining a volume send-out each day. That's why what looks as though it's mad - a CD for one pence! (plus postage) - makes sense.
And that's why they'll always beat the little sellers; minor sellers just can't negotiate similar postage discounts to make the model work.
At the moment, there's probably about six or seven UK-based vendors making money from this, but the situation won't last forever. Fewer and fewer physical CDs are being sold and - give it a few years, five at the maximum - the market will be all but dead. There'll always be a market for weird collector types, but it'll be very much on a one to one basis. And that's an entirely different market altogether.