An important thing to always keep in mind is that market behaviour is an aggregate of player behaviour. Now what the hell does that mean?
The market is an abstraction.
When economists or anyone else talks about “the market” that is just the collection of actions taken by all market participants. The market does not exist as a real entity, it is just a theoretical concept.
Yes, and so?
I’m sure you wonder why the hell this matters, or might even think I’m being incredibly obvious, but there is a point here.
To make gold you have to sell your stuff to other players. So your pricing, quantities and posting patterns need to be optimized around what a single player might care about.
Undercutting is not stupid. There is a limited number of players interested in buying an item at a given price point. By driving the price down you might entice more players to buy, or players to buy more items. E.g. if I notice flask prices are 20% cheaper than usual I might buy an extra stack to keep around.
On classic we still have the old AH. For stackable items this is incredibly important. So you need to optimize for what different players might need. I do this by selling alchemy consumables in every possible stack size from 1-5 and treating each stack size independently, cause a 2 stack and a 3 stack will appeal to different players. Even if it’s still the market for “mongoose elixirs” there’s still different people.
The mistake people make is to think that the aggregate behaviour is the main focus. You should always optimize for what a person needs. This is the way to profits across so many different variables you can play with. Using missives to get the right stats, focusing on the most popular legendary slots, and even identifying useful items. It all comes from thinking about “what do actual players want or need?”.
Understanding “the market” is more useful in terms of understanding how behaviour changes with time, and how that leads to variations in pricing, supply and demand. Such as the weekly cycle where players buy more consumables on reset days as more guilds raid then and players do more m+ runs.
To sum it up
Understanding the useful parts of a market involves understanding how players who want or need that item behaves. Focus more on why someone wants an item, what they might be willing to pay and how the set of players buying this item changes over time. This is much more important than looking at price graphs or analyzing a market in the abstract sense.