While there is usually an ICANN fee involved with registering a domain, domain registries (like Verisign or Nominet) set the base price for domain registration/renewal prices. When GoDaddy or any other hosting company offers any sort of discount on domains, they are eating the cost of that in hopes that you will then buy the hosting, the security, the email, et al, from them. This is why it always behooves the customer to purchase as many years as they can on that initial purchase, so they can enjoy the discount for many years.
Domain registrars are allowed (by ICANN) to mark up registrations for profit. So while it's true GoDaddy would take a loss on free or very low-cost registrations (which is probably what happened in this instance), some discounts would only eat into their profits.
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