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I'd say the seller is either incompetent or a fraud. I would keep the refund and keep the book. Let Amazon clean its own house. They are the ones who need to deal with this behavior and get their $5.88 back from the seller.
Either way the seller needs to learn a lesson. If he isn't penalized then you're doing a wrong by making things "right." And if he gets double penalized, well, that's his fault. Fucking-up is bad for a reason.
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