Are there any provisions to this policy to ensure that it's not abused? It would be trivially easy to create "sponsored" links on behalf of your competitor in order to get them penalized.
The economics of this only work out well if you have high marketshare (if you're 5% of the market, and you blow up a competitor, 95% of the benefit accrues to the other 95% of the market). So I think this threat is overblown.
Every time it comes up, I've asked for examples--if you hear of any after the fact, I would greatly appreciate it if you'd get in touch. Email's in the profile.
The marketshare of clicks is mainly divided among the 10 sites on the front page. I imagine the benefit, when shared among only 1-9 sites, could be significant. Also consider the benefit of moving from ranking 11 to 10 or from 2 to 1, for example.
Though I can't speak for the efficacy of this technique, this fairly old article suggests submitting competitors articles to directories to reduce their perceived (by search engines) quality: http://www.bluehatseo.com/open-questions-when-to-never-do-ar...