I undercut because I would like my items to actually sell.
Because everyone undercuts, if you don't, then your item will never sell, and you'll find it still listed 6 months later when current prices are half of what they used to be.
I actually DO need the gil, which is why I actually want it to sell in a reasonable time frame, unlike some spiteful people who will undercut by thousands just to 'teach people a lesson'...