Do not let competition cause you to overbid. Figure out how much you can afford to bid per click and stay under that level. If your breakeven point is not high enough to get your ads on the first page, so be it. Whatever you get is whatever you get.
One thing that often helps is to spend some time patrolling through your query reports, and also a keyword research tool, to look for unsuitable searches that should be blocked.
Anything you can do to weed out off-target impressions and clicks will make it easier for your ad campaigns to be cost-effective.
What kinds of followup systems do you have? Sometimes the competition can pay more per click because they're counting on future sales to the same user.