I am thinking about this whole competition thing and I see it from a slightly different perspective. Let me offer this opinion. While stiff competition is always a good thing, I think it is more difficult to be a true standout (not just the best in the class, but a true standout - nearing 100's in all classes... especially difficult ones) with a lack of competition. It's easy to be motivated with competition present, but those who can stay motivated without it have, IMO, greater control of themselves. You won't always have that competition to drive you in the real world. Playing pool is kind of my thing, so I like to analogize to it. It's easy to play better against stiff competition, but the mark of a truly great player is to play great against even lame competition.
Additionally, being the class standout affords different opportunities. I know when I was in undergrad, most people in my structural classes came to me with questions rather than the professors. This provided two mechanisms by which to improve myself. First, I realized that my classmates had rather high expectations of me (which I did not want to disappoint). Second, I remember the saying that the best way to learn something is to teach it to someone else. It helps you think about things in a way that will enable you to answer questions (and think about what those questions might be), and truly make sense of something and truly understand it so that you don't spout your mouth off not knowing what you're talking about and look like a fool later.
Just my two cents.