I make a lot of gold on the AH, and I have no problem what so ever under cutting for multiple reasons.
Firstly, I have a pretty good feel at what will sell at what price. People often see that something is not represented on the ah and post it for a ridiculous price. Such as people selling Darkmoon Earthquake cards for 1200 to 2000 gold. Those cards never sell for that, that's practically the cost of the whole deck. I sell those at 600 to 500 gold or less.
Secondly, I want my items to sell quickly, like by the next time I check the AH I want to feel the gratification of a bunch of gold waiting for me. Its not about making the most possible, it about having fun and getting rewarded. That means when someone does a search for an item, they see I have something for sale for significantly less and buy it quick. This only works because I rarely floor the AH with undercut items, I only sell a few of anything at a time.
Finally I'll mention that I don't really care if I have a negative effect on the economy, because in the game I'm a consumer as well. Also at the end of the day, we're all playing with pixel monopoly money that has no real value. (Other than the gold black market).