Anyway enough stroking my own ego, I whispered him something along the lines of "Do you really want to do something like trying to (ineffectively) wall me when demand is this high?". After getting a few responses that would make Call of Duty chat and 4chan nod in approval, including the implication that I had a VERY healthy love of my dog, I decide to give him an ultimatum and present him with 2 choices.
1. Work things diplomatically.
2. Continue as is and find out how low I'll go.
Considering how he's reacted / messaged me in the past (including a constant stream of insulting me then logging off, logging on 10 minutes later and repeating) I assumed he was both unlikely to take option 2, and mostly likely and arrogant little bugger that didn't realize when he was digging himself a hole.
After waiting 10 minutes with no response I went ahead and undercut him again, to which he dropped prices to 90g ea (As I said in my prior post I had everything at 150-350) which I undercut, and so forth until some of the gems hit 80g each, at which point he whispered me "LOL all undercut, now you godda watch the AH all night", well that's the family friendly version of the message anyway.
How to handle it:
I figured I'd take this opportunity to point out what all the possibilities of how things can play out are, and how I intend to deal with them. Hopefully anyone having the same problem will find this useful.
1. He continues undercutting me down to around 70g. This is slightly above my crafting price so I'll quite happily buy him out and reset the market at this price. Who cares if you're paying your competition, you're also getting cheap stock if they're stupid enough to go this low.
2. Before option one takes place I've pulled all of my stock after he logged, sales will either burn through his 2 deep wall with how demand is currently, and anyone that undercuts him I can buy out. All I need to do is watch my posting scans and only post ones that he's sold out of.
3. In the eventuality that he logs back on, undercut him ASAP to make it seem like I'm playing along with his little game. He drops prices further and I get closer to being able to take option 1.
Now depending on how much time people have this may not be viable, but this covers all the bases pretty well. He keeps undercutting me, I get cheap stock, I win. He doesn't come back on, prices recover, I win. He logs back on, continues to think that I'm an idiot, and continues the process, I win.
Even though buying out his stock is giving him cash, for him to restock he has to buy materials at the raw material prices that I personally inflated, meaning for every gem I buy out I get stock I'd buy / craft anyway, and he has to spend an additional 10g per gem on materials.
The trick to dealing with competition: Don't let them realize they're digging their grave until you're sitting at the edge of the hole with a load of concrete and smiling at them.