There is no doubt that Most SEOs Believe Competitors Can Hurt Your Google Rankings specifically with using link building tactics. But when the topic was raised recently at a Google Groups thread, Googler, JohnMu, pretty much denied it.
Let me quote you John's post:
In theory, I can imagine that there might be some borderline situations where that would be possible, however in all the time I have spend diagnosing website issues I have not once run into a situation like that. Also, I know that if a situation like that were to come to our attention, it would be resolved very quickly.
When very technical people say the phrase, "in theory," it typically means its not really possible. It typically means that the chances of the event occurring is slim to none. At least, my experience around programmers all day taught me that.
John flat out said that he has never seen a situation where a competitor driving bad links to a site has hurt the site, ever. Now, John has been with Google for about a year now and during that time, I suspect he reviewed about a site per day. That is a lot of sites and not to see any of those sites impacted by a competitor sending harmful links to it, is a bit shocking to me.
Of course, John might be saying that the harmful links were not from the competitor. Or he might have perceived them as not being from the competitor. In addition, these sites may have have other technical issues that were against Google's TOS. Hard for me to tell you what John has seen or hasn't seen - even harder for me to tell you what John is thinking.
But if you read through the thread in detail, you will see some things that might be hard to explain. In the case of the thread, it seems like John is hinting that the site in question has several on-page issues that need to be addressed. But the webmaster, as are several webmasters not associated with the site, seem to believe what many other SEOs believe - that Competitors Can Hurt Your Google Rankings.
Forum discussion at Google Groups.