Competition isn't so much about 'competing' as it is about 'complementing.'
Competing, to me, stirs up feelings of 'me against you' like two similar writers with similar ideas elbowing each other for the one last available seat at the adult's table during Thanksgiving dinner. But establishing your list of competition, in your marketing plan, isn't really about targeting your competition for elimination, so don't start hurling those tomatoes yet. It's about explaining how and why you fit in with this bunch of already successful writers (they're already sitting at the adult table and you want to join them). This being said, we must do our best to get to know our complementing authors, and then we must explain why we should be allowed to dwell in their hallowed midst. We do this not by saying, "Their book totally sucked and mine doesn't." (Remember, the agent you are querying might have been the agent for that book!) So, no, no, no...we don't join the adult table by saying that. We join by saying, "Their book focused on Dog training tips, but my book focuses on Dog Training the Shih-Tzu--one of the Ten most popular dog breeds in the US, and one of the most difficult breed to train.
Explaining how your book is different from the competition, and thereby fulfilling a need that has been so far ignored (complementing the information that is out there), is probably the most important aspect of your proposal. Everyone remotely interested in your topic, from agent to publisher, to marketing...to reader is going to want to know how your book fits with what's already out there. So don't tell them why it's better (in your opinion), tell them why it's different. If you don't do this right, you may just end up REJECTED because of Reason No. 47 "You Aren't Able to Significantly Differentiate Your Book from the Competition."
This rejection, from mentor M, is one of my favorites. This is because understanding it leads to believing in your book even more. For example, let's take my possession book. When I did am 'exorcisim' search on Amazon I came up with over twenty books on the subject. Most of the books were written by priests and exorcists; there were also a few written by psychologists and there were some fiction ones from authors, but there wasn't a book written from a first-person perspective or as a memoir. Also, most books dealt with the exorcism itself. Whereas my book deals with the journey towards possession and then the journey towards exorcism. My book was astoundingly different and it was needed. After all, if we're going to discuss exorcism shouldn't someone who's actually been through one be invited to the party?
Of course, if we are writing 'formula fiction' such as a historical romance than proving our book to be different from the competition is practically unnecessary. Formual fiction, after all, has to follow certain guidelines in order to complement the entire genre. However, all the books in the romance genre are still not completely the same. Writers still have to look up their competitors to see what timelines have been done and what settings have been done to death. If the Scottish Moors were popular for all of 2011 maybe it's time to write a love story in Amazon jungle? (I'm not sure that would work, but maybe I'm wrong.) The point is, even formula fiction writers have to complement their genre with something a little different.