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Currently competitors can damage you in a variety of ways (probably best not to get too specific as you'll give some people ideas) but general things that Google lets your competitors affect your rankings with are:
1. Inbound links from "bad" places.
2. Hundreds of links from one IP address.
3. Duplicate content:
3a) from competitors scraping your entire site and creating their own from it
3b) from competitors stealing your articles and submitting them to article submission services
4. 301/302 redirect hijacking (after all this time it STILL happens!)
and more. There is a new one that is very quick to work using 301's that I daren't put in here but a black hat "associate" of mine said she's dropped quite a few of her client's competitors within days!
Why do you think that Google has this mentality of allowing this war between webmasters? They could simply ignore bad stuff rather than filter sites, such would not create less relevant results.