If the 99cent item is defective, will you refund them the shipping as well as the cost of the item and the cost to ship it back? Most sellers I have come across will not do this.
First off, I don't sell substandard goods. I would never knowingly send a customer a defective item.
But if I did send a product that I did not realize was defective, absolutely, yes, I would refund the entire amount, including shipping.
If the defect was caused by the manufacturer, I would pay for return shipping so I could send the product back to the vendor and get a refund of my own.
If it was damaged in shipping, I would either 1)file an insurance claime (if it was insured) or 2) refund the customer their purchase price & shipping, and tell them to discard the product as they see fit, no need to send it back.
I mainly sell fabric, so damaged shipments are rare. Hard to break a yard of fabric! I did once sell a piece of fabric that had a flaw, which I did not notice. When the customer contacted me, I offered her either a complete refund to return the item, or a partial refund for the amount of fabric that was unusable.
I do accept returns if the buyer has simply changed their mind about the item. But in that case, when it is simply buyer's remorse and nothing at all wrong with the item, I do not refund shipping.
But as I said, I seldom start auctions at 99 cents, and I charge exact postage for Priority Mail, which is $3.85 for most orders. So I am not taking $16 for a $1 item.