berrynxt4u has put it correctly, But anyways I will love to say it again.
-Seller can offer a product at particular price including shipping.
- Now he has to divide this price into 2 parts, Buy it Now Price and Shipping Charges.
- eBay wants the Shipping charges minimum and Buy it now maximum as they charge FVF fee only on Buy it now price.
(thats why they always promote Free Shipping item)
-Its like paying FVF fees even on the shipping charge.
How it affects Buyers-
This is the most tricky part.
Buyer gets carried away seeing free shipping thinking seller is paying for shipping from his pocket. But he is forced to pay actually a little extra. As in free shipping item seller will also include FVF fee on shipping as well and add it to the item price.
eg-
Seller pay's 100 Rs in actual for shipping a mobile(fixed price- 2000).
With No free shipping-
If he adds directly this under shipping charge he will put 100 Rs in shipping and 2000 Rs as Buy it now price. Total- Rs 2100
With Free shipping-
He has to pay FVF on 100 Rs of shipping and also he will include shipping charge in buy it now price.
So buy it now price becomes-
2000+100+5Rs(FVF)= Rs 2105
I request buyers not to be carried away by free shipping items where they are actually paying extra for that feel good factor. Check out matured eBay.com market where almost every product is with separate shipping charge.
Disclaimer- The example quoted is just for reference and actual shipping charges and FVF fees may differ according to category of product.