Since you can't compete on price, then compete on all of the other selling points that the software has:
- features
- quality
- effectiveness
- integration with other software
- service
- support
- direct selling
Basically, you do what every other company does when they're in price competition: keep pace, or change the game.
It is almost never OK, legally or ethically, to release products that you have created using your employer's resources or while being payed by the employer for your time without permission.
However, it depends on your employment contract. If you were paid by the company and/or used company resources to produce the product, chances are that the work belongs to your company. You need to go through your supervisor and your legal department. Depending on your employment contract, there might also be restrictions on working on related technologies or using knowledge gained at your employer in projects, even if you work on them using personal resources on your own time.
If you are using paid time, company resources, or are developing something that might be considered related to the business of your company, always seek guidance from your manager and/or legal department to ensure that you aren't violating any agreements and to get the appropriate permission to work on projects. Typically, it's easier to do this before you begin work as it might change the approaches that you take on the project.
Writing products for the use at work on your own time is questionable and depends on the regulations that your employer must adhere to. At the very least, you could be interfering with your employers schedule, budget, and estimates by taking work off-line. In some cases, you could be violating the contractual regulations by creating products outside of time that is tracked and billed appropriately.
Best Answer
There are two real questions here. The first is what are you liable for. The second is whether you should be concerned. Those two have different answers.
I'll first answer the first to the best of my ability. I am not a lawyer, and this is not legal advice. If you are concerned, check your employment contract, and consult with a lawyer. But I can summarize the situation in two states.
In New York state, you are likely to be a professional employee. A professional employee has no set hours, and no set workplace. If you go out to dinner with a client, you're at work. If you figure out how to solve something in the shower, that belongs to your employer. As a professional employee the default, which is likely also in your contract, is that all of the software that you write is a work for hire that belongs to your employer. The prevalence of this kind of arrangement is one of the reasons that the FSF requires copyright assignment, and requires your employer to sign off on it.
In California the situation is different. As long as the software that you write does not relate to anything your employer is doing, anything done on your own time with your own equipment belongs to you, and this right cannot be signed away. However if you're independently developing the same thing that your employer is, it is probably going to be owned by your employer. Even if it was a secret project that you did not know about. Whether this case is important depends on the details of what you are working on, and what your employer is working on.
So you see that there is no simple answer. Depending on the state, and the facts of your situation, you might or might not own your own work. And if you don't own it, you have no right to license it.
Now on to the practical issue. What the law says determines what will happen should a dispute arise and be taken to a judge. However it is very uncommon in practice for disputes to arise and be taken to judges. Furthermore many employers either don't care, or positively like, their employee contributing to open source work. Particularly if the project is one that the company finds useful and they would like you to develop expertise with it. Frequently procedures exist to get OKs for you to perform such work. It doesn't hurt to check.
Furthermore if you contribute to open source work, despite the fact that it is unclear whether you have a right to do so, the odds are pretty good that you actually won't get in trouble for doing so. And if you do get into trouble, the odds are that you'll get a slap on the wrist and be told to take stuff down, rather than suffering large legal penalties. Is the remaining possible risk within your comfort zone? That is up to you. But I can tell you that there are a lot of people doing it, and fairly few stories of people running into trouble. (And in the stories that exist, usually there was some other cause of trouble, and the fallout for their open source work is a consequence.)