I am not exactly a master in this field, but...

I do undercut between 1 and 10000gil, depending on the purpose, which mostly comes down to sales history. If an item sells regularly (ideally daily) at steady prices, I don't undercut at all; in fact I consider sitting on 2nd-4th listing expecting it to sell in a timely manner.

That is, if the item doesn't have a downwards trend or the supply outweighs demand over time.

If it is an item that starts tanking in price, it depends at which rate it does. If it goes down slow and steadily yet demand still exists, I will likely undercut if it nets me more gil than selling a different item. If it drops rapidly (example: grade VI materia in 4.4+) due to a sheer supply / availability increase, I will hold onto my stuff until it stabilizes a bit and watch from there what I can salvage if I don't use it for myself.

A different matter would be items like primal plushies (or their crafting mat) where the supply ends up low but so does demand; in such cases I gauge whether I should undercut by the 1-10000 in hopes someone will buy it before 2nd will undercut me (thus tanking the price more than intended) or going for a 30-50k drop to make it lucrative for buyers who wanted the item for a bargain while flashing out potential undercut follow-ups.

TL;DR: Undercutting isn't as binary of an option for me, it involves multiple factors if, when and how much I should do it. Eventually it is a tool to stay competitive in markets and has its' place, but shouldn't be overused to avoid rage-tanking prices by fighting bigshot sellers who don't care about losses.