If anyone undercuts my shit by less than the cost of tax just so they can be higher up on the list, I undercut as hard as I feel comfortable. When I was doing the craft one of everything achievements, I caused a lot of furniture to drop from 200~300k down to ~50k.
Fuck penny undercutters. I'm not going to let you be higher up on the buy list without costing yourself anything.
In the same vein, I try to avoid buying shit from penny undercutters if I see the same product for a normal value (ending with a bunch of zeroes).