"Undercutting" is the process of pricing your item a meaningless amount -- say, $0.01 -- below the current lowest price on an item, which causes your item to be displayed and added to a user's cart first. While this is not against the rules, and we do not have a problem with competition amongst sellers, this is the wrong kind of competition.
This sort of "competition" is centered around pleasing the Marketplace.tf service, not customers. A $0.01 difference is all that is needed to prioritize an item for the code, but to a customer a single penny is likely negligible. This is not meaningful or healthy competition; this actively degrades our service.
Before we continue, a quick note on our current round-robin sales system. This system ensures that, within the scope of a single order, as many possible sellers are represented.
For example, let's say someone buys 10 of item X at $5.00, and there are 4 sellers providing this item at that price point. Each seller is guaranteed to sell two items in such a scenario, and two sellers will sell 1 additional item each.
Matching the current lowest price ensures you have an equal chance to sell an item as every other seller.
Back to undercutting, we've made a simple change to pricing items. Now, if you attempt to price an item below the current lowest price offered by other sellers, your new price must be 1% (or $5, whichever is lower) lower than the other price. (However, you can match their price just fine).
This does not apply to items priced below $2.50.
For example, if you're selling item Y at $55.00 and someone else wants to undercut you, they'll need to price their item at $54.45 or lower (or $55.00 or higher).
This change ensures that if someone undercuts your price, it's because they've offered a meaningful price decrease to customers, as opposed to because they made a negligible change that nobody cares about.