It is frustrating, annoying and indeed unfair - but it happens!
It happens to me, in my town I have people offering tans, nails etc for ludicrous prices. I maintain my prices, my standards and my professionalism.
People have a choice as to where they spend their money, I often liken it to supermarkets. Some go for the bargain option, maybe Lidl or Aldi. Some go for affordable quality like Sainsburys or Tesco. Then some like to shop in Waitrose and Marks & Spencers - the luxury end of the market.
Pick your target market and aim your prices and services accordingly. I market myself toward the mid range, not too cheap and not too expensive.
Try not to let it bug you, she cannot be making any money with the prices she charges. Concentrate on offering the best experience and service you can and people will vote with their feet.
xx