If someone doesn't want to be your friend because you undercut them, then they are not a friend anyway. No ones owns the right to set a price, nor should anyone expect their friends and guildmates not to undercut them.
I undercut everyone and get people mad at me all the time. Someone whispered me today and called me a "greedy bitch" because they priced a glyth at 50g and I priced it at 20g. They told me they charge what people are willing to pay and that I don't know anything about making money on the AH. I told them I charge what I think even more people are willing to pay, and I wasn't the one being the greedy bitch.
I asked this person how much they had made selling glyths and they said 10k. I told them I had made over 50k, so my plan of undercutting was smarter. They called me a liar, so I went to Org to show them I was not lying. We compared achievements (it's under the Statistics tab, Char, wealth). It turns out they had made 5k total and I had made over 60k, they were the liar.
Just because 10 people will pay you 50g for a glyth or whatever, doesn't mean 100's wouldn't have paid you 20 for it. No one has the right to set a price for anything so high that tons of people simply won't buy it. If you want to undercut someone, go ahead. If they don't like it they can undercut you again or go sell something else!
I have sold nothing but glyths on the AH, all around 20g or under. I started charging more for a few of them when WotLK came out becuase I wanted to go level and got tired of ppl buying out my glyths and then putting them back up for double what I had charged, while I wasn't looking. There are only a handful of them that I had to do that with though, the rest are still 20 or less.