A big outfit like B&H is probably undercutting just about everybody on either side of the border. Fact is they are cheap and they have just about everything, hard to beat that combination. I would disagree that anybody is trying to gouge or rip people off. Nobody is getting rich in retail, they are setting prices based on their own costs and it is up to you as the consumer to pay them or not. A local shop has to earn your business somehow and if they can't compete on pricing then they need to do it some other way.
I've always believed in shopping local if I can. I'm lucky to have a lot of good local businesses in my small town but, in my case, 'local' for film and paper is 2000 km away in Vancouver where I order most of my film and paper from Beau Photo. They've been great to deal with and their prices are reasonably close to B&H by the time I factor in shipping and duty.