Market rate is the pay rate of the last person hired. Assuming all people are equal and for the most part for big business they are. Everyone hired before was hired at the previous market rate. Similar to how you might have bought Apple stock for 50$ but now it’s worth significantly more at market rate

For a sufficiently big company, or in an area of particular shortage of opportunities, you actually do - you're guaranteed someone will undercut themselves.

Further, if a job is sometimes done by people "on the side" who have low income requirements. (Jobs seen as student jobs come to mind.)

Labor is not an efficient market, so the "market rate" is already -- and always -- distorted to begin with. Especially when your economy is built around approximate "full employment."