Do people not realize this or are they just too stupid to care?
You're putting an item up on the market in Gridania. Currently there is someone else selling it for 3000g in Ul'dah. How much should you put yours up for?
The stupid answer is any amount below 3000g and the lower you go the stupider you are. You do not have to start an undercutting price war with people when you're selling from a different city. If you put your item up for 3000g then anyone buying from Gridania, assuming they're not an idiot as well, will buy your item over your competitor's because the item being sold from Ul'dah will come with an fee attached making their item cost more than yours by default.
Without having to start a price war you've managed to secure an advantage in 1/3 of the market, a 50% chance of selling in another 1/3 of the market and only come out the loser in the last 1/3 of the market all while keeping the price stable for future sales.
Every market covered by other sellers so you lose out on any advantage? Then if you must undercut at least undercut like someone with half a brain and go in small increments. Selling for 2899g moves your item no faster than if you had sold it for 2999g but you've screwed yourself out of 100g and started the price on a downward trend that the next idiot will try and match by putting theirs up for 2799g and so on and so on.
It's... more complicated than that.
Okay, so maybe that Nophica's Wonderbra you're trying to sell is being sold by someone else for 3,000 gil. But how often does it sell? And what does it usually sell for? This is also important to consider.
If people haven't bought a Nophica's Wonderbra in three weeks and the last time it sold, they all went for 10 gil, it could be there's just no market for the product at all, and you'd be better off selling it to an NPC. Then again, maybe it's because they're no longer made and it's now a collector's item which, to right person, might actually go for 10,000 gil, especially if it were dyed pink.
More often than not, however, it's a question of supply. It could be Nophica's Wonderbra usually sells for 1,000 gil, but because the supply dried up, only the one being sold for 3,000 gil is left. It's at this moment, you have to ask yourself, is the supply going to come back, and if it does, is it going to be undercut all the way down to 1,000 gil again, and you better price it sufficiently downward so that you get a good price before the supply returns and ruins your chance to make more than 1,000 gil? Or should you ask for even more... maybe even 4,000 gil, which an anxious buyer might pay if the 3,000 gil bra sold leading them to believe the price is going up, and if they don't get that Nophica's Wonderbra for 4,000 gil now, how are they ever going to get the support for their chest that they need without risking paying even more for it, or not being able to buy it at all?
It's not just about reacting to the current price, but sensing the trend. If you always undercut, you'll never make as much as you could by taking advantage of a weakening supply.