"One of the prime issues with competition is that from a psychological standpoint, it distracts from the goal at hand." I would add that the idea of "winning" can distract in multiple ways. There is, as you point out, the fear of being beaten by the "better" opponent but I also believe that the desire to "win" can shift from a perceived prerequisite to the primary purpose. That is to say one can become so focused on beating the other guy that he or she forgets what the reason for the competition was for in the first place.

I can't say that it is always a bad thing. You mention sports which I think is fine for the reason that you point out. It isn't a life or death struggle so it isn't particularly harmful there but life and sports are two different things. When it comes to who gets to eat or not, competition can get pretty dark and cause a lot of unnecessary suffering.