Encouraging bloggers to link to their competition is something that we've doen before. It show that you are in touch with the industry and the discussion, serves as linkbait, and show confidence on your part. Well, today, Search Engine Land has outlined 3 specific ways to benefit from linking to your competition. Summarized, they are as follows:

1. Aggregating Your Competition
Presuming that blogs exist within your niche, be they competitor blogs, customer blogs or enthusiast sites, bringing the best of that scattered, authoritative information and reprinting it at one central location adds huge value for customers. In fact, the synergy created by such focused aggregation can create make your site an entire authority itself. [...]

2. Summarize Your Competition
You can also become a summary site in addition to or instead of reprinting material. This again relies again on your expert knowledge of the subject and your ability to pick out the most amazing content within that niche. Most important, you need to tell your customers why the content you highlight is amazing. [...]

3. Lead Your Competition
[...] This last concept is about tying together the ideas outlined in the points above and furthering your role as the focal point within your category. By taking the lead on important issues in your industry, organizing cooperation amongst players and recognizing innovation and progress by your competitors, you can take the concept of the community hub to the max. You won't regret it in terms of links, traffic and the knock on effect those have for search.

Of course, Search Engine Land goes into much more detail, and if your operation is blogging, the Complete Article is definitely worth a read.

Further Reading
What is Linkbait? @ ProBlogger (great list of links here).
What is Linkbait? @ Modern LIfe Rubbish.
2007 Guide to Linkbaiting @ Search Engine Land.
Linkbaiting for Fun and Profit @ Search Engine Journal.
Leveraging Linkbait @ Yahoo Publisher Network.
Linkbaiting, How Hard Is It? @ Internet Search Engine Database.
Linkbait as Practice that Shifts SEM into Social Media Marketing? @ Search Marketing Standard.
SEO Advice: Linkbait and Linkbaiting @ Matt Cutts.
The Art of Linkbaiting @ Performancing.