Is it ever right to price below the restaurant next door?

Only when your own cost structure supports it — a lower rent, a leaner recipe, a production method that takes labour out of the plate. Their price tells you what they charge; it tells you nothing about what it costs them, what year of the lease they are in, or whether they are losing money. Match a neighbour's price without matching their costs and you have imported their model without their margin.

From Cost-Optimised Pricing Makes Restaurants. Reckless Pricing Quietly Unmakes Them. — the full reading, with the method behind this answer.