Competition gets a lot of visibility for aiding in creation of a quality product. The assumption is that everyone will work harder and improve the outcome if there is a competition for rewards.

However, in practice, it really doesn't work that way. Here are articles about two studies that demonstrate in different ways that winning induces the competitor slack off, losing makes one try harder.

We're Only Human

Psychologist Wesley Schultz of California State University, San Marcos believes that despite the fact that we want to be normal, most people are very bad at estimating what normal human behavior really looks like.

[...]Schultz decided to test this idea in the real world. He enlisted nearly 300 residents of San Marcos, California, who agreed to let him monitor their home energy consumption. He measured their energy use once to start, again soon after, and once again several weeks later. Throughout the experiment, he gave them information about their actual energy use and how it compared to the average energy use in San Marcos.

Schultz wanted to test one additional idea. With some of the households, he did not just deliver straight information. He attached an emoticon to the information sheet. If the homeowners were below the community average in energy use they got a smiley face; if they were consuming more than their neighbors were, they got a frowning face. He wanted to see if social approval or disapproval—conveyed by the emoticons—might moderate people’s behavior, for better or worse.

The results were clear. As reported in the May issue of the journal Psychological Science, the residents who got just straight information changed their behavior as predicted. That is, wastrels became more conservative, and the frugal became more licentious. There was a boomerang effect in other words. However, the greener consumers who also got praise, in the form of a smiley face, did not become more wasteful. The message they were getting was something like: "You’re doing better than most on the environmental front and society applauds you for this. Keep it up." And they did.

How about the frowning face, the stinging symbol of society’s disappointment with you? Well, people who earned a frown did moderate their consumption, but no more than those who simply learned of their excessive energy consumption.

Rewarding the most efficient energy user induced them to be less efficient. Negative feedback did improve performance. Similarly,

richer people are slower to learn to associate a stimulus with a financial reward than are poorer people, and this slower learning is reflected in slower response in the brain areas associated with reward and reward-directed learning.

Competition tends to even the playing field, the best become more average, those at the bottom tend to get better.