Take away hatches for Merchants completely, no. If you do that, then'd you'd have to take away buying from NPC shops for ranchers since that is a merchant's advantage. ;)
I don't think colors should be reduced either, really. I see people hatch sepias, creams, and blacks allt he time as ranchers while I am a merchant and hardly hatch one sepia or cream per month.
Also, if you haven't noticed, business isn't amazing for merchants either. It's hard to make a large profit. When I was focused on my shop more, it was difficult to make more than 50k per day.
Removing hatches from merchants would be a huge downer because some people don't have time to check to see if someone undercut every single item in their shop. Hatches are a nice way for some people with limited time to hop on, hatch, and check their shop till.
Besides, what item can merchants get to sell for over 1,000,00 tu besides dye kits? I just don't see the point of limiting merchants more. People tend to *censored*ume merchants make tons of tu, but that usually isn't the case.