There is nothing wrong with setting up a site which has fierce competition. If that was the case, then there would only be one store per town, one gas station, etc. etc..
If the subject that you are interested in is really big and competitive, if anything, that leaves you an opening - you can focus on one or two aspects of the field, and "be the expert" as we all like to say.
I faced this earlier this summer, when I decided I'd write about one of the two biggest things I'm interested in, we'll call the topic "Widgets". It has a lot of money and interest involved in many aspects, covering a lot of age ranges and income levels.
There were several huge "Master Widget" sites that covered a lot of aspects about Widgets, but didn't go into a lot of detail about certain individual aspects of Widgets - sure, they'd do a fluff piece a few times a month, but that was the extent. They offered a lot of things that I could not offer.
However, I focused on the areas about Widgets that interested me - I setup a site about one aspect of Widgets, that would only interest certain people. I researched and researched, and found all kinds of resources and news and topics about this area of Widgets.
It took a while, but now when people want to know about Widgets in general, they still go to one of the Master Widget sites for the most part, but if they want to know about a particular aspect of Widgets, they end up at my site.
It's now to the point where I get enough traffic to cover the costs of the site, and very nearly my own time, and where I've been "noticed" by a few of the Master Widget sites. I've even gotten a few legitimate links from them - I'm not going to threaten their business anytime soon, and they wouldn't be able to get enough of a return off of setting up a section of their site to cover the things I do as in-depth as I do, and so I'm doing okay - I should only see exponential growth over the coming year.
Whatever you do, if you tackle something like this, it's got to be something you really enjoy and know a lot about or want to know a lot about, and there have got to be openings in it - small subsections that aren't covered.
Just ask yourself what's missing as far as websites, in regards to your interests, and focus on those.
Better to start off with a very narrow focus and then broaden it as you go, than starting off with a broad focus and trying to maintain that.