Undercutting by 1 gil?

[Zojha]

It benefits all crafters to undercut by very low amounts lest you make significantly less.

Or more generally put:
It benefits all sellers of a good to engage in price collusion, rather than allowing competition to create a socially desirable equilibrium in which the price equals the marginal cost of production (Which equals the value of the time needed to procure and process the materials which, given perfectly competitive i.e. efficient markets, would equal the rate at which a person can generate gil from the system times the time needed, as all goods on the market would have the same price relative to the time needed to create them and time arbitrage therefore impossible), because it increases the producer surplus at the cost of the consumer surplus and creates a deadweight loss.

That leads to an allocatively inefficient market, which even a diehard free market economist like Adam Smith would deem undesirable.

Fact is: If someone can consistently undercut by considerable sums, the price is still higher than their marginal cost of production, otherwise they would have to close business. That means either that the price so far has been set wrongly and competition has failed to produce socially desirable results, i.e. allocative efficiency, or that this competitor has innovated and now is more efficient than the others, therefore has all the rights to crowd the others out of the market if they fail to keep up. Unsustainable undercutting, i.e. selling below your marginal cost of production is only possible for short periods for reasons stated above. And that's no issue at all in this game, because even if the person crowds everyone out of the market with aggressive undercutting to then install monopoly prices, people can just re-enter the market at will. As a result, undercutting cannot cause actual harm in this game, as it cannot have a lasting negative effect.

The only negative effect it has is on the profits of sellers. Note: Profits. Profits are what you have left when you subtract the costs from your revenue. Since profits are going to be very little if the marginal cost of production equals the price and the market is efficient, every seller is going to tell you that this is bad. Bluntly put, that's propaganda. It has nothing to do with allocative efficiency, it has nothing to do with social surplus, it has nothing to do with welfare economics or the benefit of the economy to society, it has nothing to do with economic health, the only tangent to economic theory is the desire of a producer to maximize their own surplus by abusing market failures.