No, undercutting by however much you want to undercut is perfectly fine. But let's look at the reasons why you might want to massively undercut?

1. You are an idiot: You don't know how money works, or you can't read and chose your undercut price by mashing your keyboard into your forehead until the game allowed you to put the item up for sale. This is a silly example; if folks like this even exist, they are very rare and not worth considering. Their underpriced item will sell quickly, and have no effect on the markets as a whole.

2. You can see the market changing: You're among the first to discover that an item that used to be difficult to obtain is now easy. Perhaps an NPC has been added that provides it, or you found out that you can get it by desynthing certain common items. It's time to unload your stock, pronto, before the market crashes all on its own. The market's going to change, no matter what you do, so it's time to gather what scraps of cash you can! Far too many mistake these people for those in example 1. Learning to read a market is how the most successful sellers stay ahead of the game.

3. You are a mogul who wants to control the market. You sell at well below the costs of manufacture in the hopes of driving others out of the market so you can claim a monopoly once everyone else is gone. Sadly, you are not a very smart mogul, as you are trying to apply real-world capitalism to a virtual economy - while you may drive others out of a market for a time, as soon as you start to hike up prices to take advantage of your monopoly, everyone will come flooding right back in. Unlike in real life, there are no start-up costs for entering a market. None of your competitors have gone bankrupt due to your shady practices, and all of them are ready to compete again the moment you allow it. So your window for Monopoly Big Profit is extraordinarily small, likely MUCH smaller than the amount you lost trying to crash the market in the first place, resulting in a resounding net loss. Just as with the overstock example, once you stop meddling the market will gradually return to normal. This type of individual is very uncommon, because usually if someone has become a mogul in the first place, they are not stupid, and wouldn't make this kind of boneheaded mistake.

4. You are WAY overstocked on that item: You somehow acquired way more of the item than the market can sustain, and it's cluttering your inventory. Perhaps you crafted a ton trying to level up, or maybe you THOUGHT the item was going to be worth more than it actually is and obtained a ton of it to cash in. You want to sell it FAST, and so you greatly undercut others. This may affect the market prices for a while, but once you run out of stock the market will gradually recover to normal prices. This type of person is often suspected of being type number 3, since they flood the market with cheap product.

The long and short of it is, no individual can make a lasting dent in a market. They will either be a blip on the radar, or their influence will last only as long as they are able to provide product. Any seller who gets frustrated by this needs to learn to diversify. When a product dips in price, that should be the signal to move on to a different product, not throw a hissy fit and start reporting people or rant angrily on the forums. When a market suffers a lasting change, it's due to overall economic pressures. Smart sellers will bend with the wind. Stupid sellers will whine and complain that the item that used to make them money no longer does.