On the contrary, he is explicitly rejecting price fixing. You can tell this, because when you offered to price fix, he said "No" and undercut your prices. Every time either of you cuts the price, the price will be reduced one dollar further. How frequently you change the price matters a lot. Also, one of you may start to anticipate the other's upcoming price cut, and move larger steps to preempt the other. Every dollar cut from the price is an increase in the efficiency of the market.
I don't think you are correct in this statement. He never deviates from $1 undercuts, and this has been going on for over a month with very little price decay. Any significant movement downwards would need to be initiated by me and obviously that is not in my best interest. I don't think that your argument in support of efficient markets is particularly relevant in this case, although it is a noble ideal.
It is malicious in that you did because you are annoyed by him encroaching on your market and undercutting your prices. As you mention, you'd return the goods to a stranger. You have a desire to annoy or hurt this person, and the expression of that desire is, by definition, malicious.
I did not buy them because he was undercutting me, I bought them because they were mispriced and if I had not someone else would have. They might give them back or they might not, who knows. If I decide to keep the items, it would not be with malicious intent but only because I believe it is justified based on the circumstances of the mispricing and the competitor's monopolistic supply practices. I don't hold a grudge against them for it because it seems like rational behavior.
Even if you will claim that you would want people to take advantage of you, the world is not improved by your exploitation, but would be by you reversing it.
I was going to say that in looking at the situation from his perspective, I would not hold a grudge at someone keeping the items, and I have actually had the same thing happen to me before. I viewed it as my mistake for mispricing. I am trying to see how the world would be improved by my sending the items back to him.
Either way, your actions aren't motivated by the desire to help consumers. Consumers, as you've already observed, won't be effected by whether or not you return the items.
Well they are partially. I have long since stopped trying to compete for the supply. I have a very limited stockpile left to sell. I thought about making my return of the items contingent on him stopping his supply monopoly to give others a chance, but decided that a) He would not agree to it, and b) Even if he did it would ring hollow because I had demanded it.
Put another way, if you trick a girl into drinking so much that she passes out, then you have sex with her, you are a date rapist. You are still a date rapist if you encounter a girl who has fainted from drinking entirely on her own and have sex with her.
Although I could accept an extreme comparison, I don't think that this one is particularly appropriate. The consequences of the action you suggest are much more severe and involve physical and mental harm to another person. In this case, if he doesn't get the items back it will barely affect him financially. I guess I don't know his mental state but I don't think he will be particularly broken up.
People expect and want control over their own property. You degrade this when you intentionally exploit a mistake to take property away from someone else. Hence, your behavior is unethical because it is intended to make the outcome for one participant worse with no net benefits.
Well there is a loss to him and an equal gain to me if I keep them. I think maybe there is a better way to phrase your last point. Maybe that it is unethical because it is intended to make my own outcome better at the expense of someone else?