MMO economies are so complex that they actually use them to study real economics... in fact several people have done so.
My point is that the object you are selling is ultimately worth what someone is willing to pay for it, nothing more.
If you feel that it's worth 1 million gil, and nobody is willing to buy it for that much, then it's really not worth that much and you need to adjust your views.
That's the truth of economics.
Undercutting is just the natural flow of supply and demand, if there are too many Earth Crystals on the AH, and nobody is buying them for 160 gil each for stacks of 1000, then perhaps there's not enough demand for that price to make sense...
If I'm a crafter and I know that the price of said crystals fluctuates, and I can buy them cheaper at another point, or just farm them myself, often I will do just that. So your crystals are not worth the price if I'm not buying them.
Same thing goes for any item really... buyers set the price, not the sellers... you may think the seller is setting the price, but that's just who is placing it for sale at a certain price, the buyers ultimately control the price in a free market.
The taxes on the AH are a whole different story, Most people are unaware that the tax is only paid by the buyer if they buy from a retainer in a city other than the one they are located in. Calling them stupid for not having been aware of a fact such as this is not fair.
I wouldn't call you stupid for thinking that undercutting was bad, or that sellers control the price. I'll simply try to help you understand it better.
A better topic would have been "FYI - Taxes are only paid by the buyer if they buy from a retainer in another city."
You probably would have gotten a ton of thank you's and been rated up through the roof for that... but instead you decided to call people stupid for not being aware...
Yea, sorry to say but you're wrong...
If you're dealing with a high priced item that sells rarely where people will hold off on purchasing because they're hoping for a price drop... yea... that's a buyers market where they decide what something is worth...
BUT for just about every single other item in the game the price is dependent on the seller, not the buyer. When it comes to things like consumables there is a steady amount of demand associated with the sales. People know they're expected to have a certain consumable for their coil run etc so they're picking up their end of the slack and the price of those items retain a generally stable price due to the demand.
The buyer is not setting the price here, the seller is. The buyer needs that consumable and was going to pay whatever the going rate was anyway. They're not going to look at a consumable listed at the same price they paid two days ago and have been paying for every week and decide to sit on their hands waiting for the price to drop. The buyers act in reaction to the price dictated by the seller. If the price is stable they buy enough to sustain them for the moment and when someone with no idea how the market works tosses their entire inventory up for a fraction of its price then the buyer simply takes advantage and buys up what they can for the future on the assumption that if the market rebounds they've made a deal and saved on future purchases.
Undercutting only works when someone has the slightest clue what they are doing. For example take Mega Potions of Strength on my server. They had been selling at a steady 3000g between a handful of steady and stable sellers. As the number of sellers grew the market spread out people undercut based on how many potions they were selling at once. You have sellers with just 5 potions at a time that keep their price close to 3000g while others else selling 30 at a time drop their prices to around 2900g. There is a balance between buyers who want to take advantage of the discount and are willing to sit on a stock of potions and those who would rather simply buy enough to get them through their next run at the higher price.
Then an idiot that doesn't know how to read the market shows up and puts up half a dozen stacks of 5 potions for 2500g each. They've flooded the market without caring about the current balance of stock and price and simultaneously ***** over not just those selling small stacks but also those selling large stacks. The next idiot shows up and seeing the mess of prices tosses theirs up for lower than the previous idiot and the market either begins to stagnate while the existing sellers wait and hope for a rebound or collapses as they freak out and try to empty their stock before someone else drops the price even more.