Let's say you have a 2-bedroom vacation rental home in a complex where the majority of units rent for 2500 per week in the peak season. Then there are 5 or10 owners with similar properties in that complex who charge 1500 per week for the same dates. Wouldn't that makes you mad?
Well, this is precisely what you are facing. You have to deal with other vacation rental owners undercutting prices. What are you supposed to do when your neighbour is charging half as you do? Here are some suggestions:
You have to talk to them. You personally know some of the owners in your area who have considerable lower rates. So you may try having constructive conversations with them. You can nicely share your rates with them. Tell them that they may be doing themselves a disservice by drastically lowering their prices. You may also share you own booking history. Whilst some owners want to fill their calendars and be done with the booking season, others may appreciate your assistance.
So what happens when your renters ask why your neighbor is priced so much lower? Be honest. Don't complain about the other vacation rental owner. Simply tell your prospective guests that if price is their number one concern, they should go ahead and book with your neighbour because your property may not be best for them. But see to it that you're not the odd man out there. It's one thing to be confident in your prices, but it's quite another to be charging 1000 more per week. If you've priced your home out of your market, you shouldn't blame your lack of bookings on other owners' low prices. If you're priced higher than the majority of similar rentals in your area, you could be setting yourself up for failure. Do your research to make sure your rates are as good as with similar properties in your area before you whine your lower-priced neighbours.
In the end, if you still feel that your neighbour is “stealing” bookings because of his/her low rates, don't be upset. Instead, consider what that vacation rental owner is dealing with!  That owner is dealing with the same amount of work, risk and liability for a booking but bringing in a lot less cash to pay off him/her for the effort. 
Remember: although your neighbor might be booking up faster than you, you can book better. Holding out for the right renters may mean that it takes you longer to fill your calendar. But if your bottom line is higher, you'll have the last laugh! Taking reservations for your vacation home takes time and hard work. So you want to make sure that the money you receive makes the effort worthwhile. Stand firm on your prices and know that there are a lot of renters to go around.