"Wait for your competitor's item to sell at the cheaper price, then your item will sell next, and for a higher price than it would have if you haunted the AH."

I'm sorry, but in heavily camped markets this is not the case at all. If you wait for the competitor's item to sell, by the time it does, there will be another three listed cheaper than that. As a jewelcrafter, if my auction doesn't sell before it's undercut once, it doesn't sell for the time period it's listed. I see this happen virtually every day. I will log on and set up all my auctions before I go to work and check on them throughout the day through Battle.net, and while I will sell probably 15 to 30% of my stock, it all happens within the first hour or so, with the maybe one or two more sales later throughout the day and virtually none during the last 3 or 4 hours of my workday. I'm not advocating just sitting on the AH all day (I don't do that when I'm home), but I will check my auctions in between a dungeon or BG and relist those that got undercut, and I end up selling a lot more (40 to 65% of my stock or so) when I'm actively doing that than when all my auctions sit on the AH for 8 or 9 hours while I'm at work without being touched.