Imagine you want to sell something on the AH. What should you ask for it?
My usual first step is to see what else is on the AH. That gives some general reference. Then I check wowhead for the average buyout. This is gives something valuable: information about prices beyond what is currently on the AH. Maybe your ore would normally sell for 10g each, but currently everything is up for 8g. Undercutting is cheating yourself out of gold. If the other ore was 5g, then you might consider buying it up and relisting, but personally, at 8g the risk isn't worth the reward. If the market is flooded to drive the price down that much, there is a decent chance you'll get undercut and the lost deposit could lose the profit. You could buy and hold it, and I would recommend holding your current ore until prices rise, but bag space isn't free and it is a gamble: if prices fall further, you're out of luck.
Maybe you don't need to undercut at all. If it's a commonly-used ore or other material and there are only a couple stacks up, there is a good chance that those will get bought without demand running out, meaning that your materials are the next ones up. Or you may not need to undercut everything, pricing above the lowest but below the highest, so that when buyers come, they see your items right in the middle, and now you've created a new frame of reference for what they expect to pay.
Whether or not you should undercut is based on best-guesses, though they can be more or less informed. Do you think someone will undercut you before your stuff is the lowest price?
Note that "lowest price" is not "lowest price per unit". If someone needs one primal, they will pay more for a single primal than for a cheaper stack. Most people are not in the business of markets. They just want to buy the thing they need and sell whatever they farm. They aren't looking to spend time or mental effort branching out, so single items can sometimes be considered a different market than full stacks. This is particularly true when dealing with materials that would be used in small amounts to craft epics or other small-batch items.
This leads me to buying and a simple pattern: People undercut even when they do not need to. This is where the title comes from. If you see a dozen stacks for runecloth at 1.5g per cloth and a dozen at 50s per cloth, but 11 of the 50s. The next person who comes along will often undercut the lonely 50s stack. The risk is that you lose out on a cheap stack, but given the bad habits people have when selling, the payoff can be significant. Or if you're feeling particularly manipulative and there are no cheap stacks up, put one of your own and gamble that it will get undercut rather than just bought out.
This is one of those things that bugs me, that I can profit by manipulating the habits of others. I don't mind that prices vary by a few percent,or more, between days, since sometimes more people are on and sometimes people are rushing to get materials before the raids. I used to farm arcane crystals, which was not particularly profitable for the time, but I found relaxing. Then I realized that I could reliably sell them for at least 50g. But sometimes they get driven down to 20g or less. Sometimes someone is clearly just trying to get rid of something and posts at an absurdly low price. I have done this when I don't care enough and just want the bag space, pricing with the intention that someone will flip the item. That's just a rational, or at least intentional, decision to minimize time spent on the sale. Contrast that with people who crash the market, undercutting to the point of stupidity. Go check your AH and I bet you'll find at least a few primal nethers for less than the vendor price.
There is some line between "sloppy because it's a game and who cares?" and "so sloppy they're hurting their own fun." I don't know where that line is, but I think selling nethers for less than vendor price is across it.
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