Quote Originally Posted by Zigkid3 View Post
People will continue to undercut repeatedly until prices fall enough to hit equilibrium.
In theory a (free) market regulates itself to a point of a perfect equilibrium, however in an online game this certainly is not the case due to human stupidity. People will undercut until no profits are to be had, your prime example of both human stupidity and a failure of thousands of children running an economy would be fish. There's plenty of fish on AH under the NPCs' buying price.

Furthermore most of economical theories are a bunch of mathematical modeling which have hardly any merit under any real circumstances, due to unpredictable human individuality as well as economists being clueless about mathematics leading to countless formal mistakes. Every model you learn about at university is simplified to hell and back and is only there to give students a basic understanding of market mechanisms.