Lets look back on Commodore. They entered the home computer market at almost exactly the same time as Apple. They had a mandate to make computers cheap and sell them in mass quantities. They started a price war with Atari and Texas Instruments. In the process, Commodore rolled over many a company and retailer.
When the PC market started changing in the middle of the 1980's, Commodore had few friends. When a new computer called the Amiga was released, nobody wanted to sell them. They were technically faster and could do more out-of-the-box, but nobody ever heard of them.
Apple stayed above the fray and survived, and we sadly know what happened to Commodore.
The point is, if Apple started to make computers to undercut the $699 HP, it would be their undoing. It's that mindset that pushed them to the brink of bankruptcy in the late 1990's.
Really? Selling $3,000-$8,000 computers (which was standard for Mac desktops in the late 90's) was starting a price war? A price war with whom? NeXT?