I have encountered a lot of business owners whose entire business is based on what their competitors are doing. Every decision they make is the direct result of something the competition has done or is planning to do. They have spies checking on the competitors, they watch them like hawks, and they are totally obsessed with everything they are doing.
Business owners like this often come across as being totally paranoid about their competitors. In many ways, their competitors are running their business, because they are the main consideration in all of the decisions being made.
Clearly, this is not a healthy way to run a business. Becoming obsessed with every move our competitors make tends to be a sign of other issues. Often, this obsession is the result of insecurity, inexperience, and lack of confidence, and as a result, the reactive steps taken by the business reflect these negative traits.
This is how price wars start--and no one wins a price war. Pricing is not determined in a sound and logical way, it is more about being cheaper than the competition, regardless of whether the business is making money or not.
It is a fear-based way to run a business, and from my experience, it rarely, if ever, proves successful. Essential day-to-day considerations like delivering a high level of customer service get forgotten, as the business owner is too busy looking at what the competition is doing rather than what is happening within their own business.
By all means have a healthy awareness of your competitors; I think this is essential to be truly successful in business. Be aware of what your competitors are doing and evaluate their actions, but don't make their businesses the center of your business.
I think a much better approach is to be good at what you do, to lead in every way, to be different, and to focus on what makes your business unique. Then you can set the pace for your competitors to follow. This takes a wonderful level of maturity and confidence--which radiates from a smart, proactive, and successful business.