Business competing with itself: here are few reasons
1. Improvement:you can constantly bring improved and revised version of your products. Just like in the software industry that every year a new version is out however it further got improved to many releases in a given day. It encourages customers to buy the new product or service. For example, Tesla as a car company is always coming with enhancements. That mindset also attributed to success of Apple.
The seed of this concept comes from the software industry of renewal, I will attribute Bill Gates with this. You signed a license agreement and you were entitled it to use for a period and then came a new version which you had to buy or pay upgrade costs. If you don’t upgrade, you miss out. If you upgrade, you pay up. The entire software industry is based around this idea of seeking ongoing payment for ongoing value ( and improvements).
2. Making competition irrelevant: It does help when you compete with yourself that sometimes competition becomes irrelevant as your visible strategy keeps changing. So, the competition is left with no option but just to play catch up.
3.Causing lock in: If you give an A customer an unlimited chance to upgrade or change or modify the product like Costco does, you can return the product if you're not happy. If it's not working. You can return it anytime now you're locked in; not to the product but to Costco1. Because you are not only buying the product, you're buying the insurance and still play paying a smaller amount than you would pay somewhere else for this insurance.
4. Dealing with Disruption: The business environment is rapidly changing. you sometimes have to game it up to ensure that you stand the test of time. You will need to create a business entity or split the entity or create similar looking businesses. You may need to create chain stores around your existing business to thwart competition. Others might be doing exactly the same thing and living up with some degree of cannibalization of customers.
Getting your business(es) to compete amongst yourself helps pushing the staff to higher performance levels and also brings opportunities for them to grow personally and professionally. This also helps expand their mindset to growth mindset2 as they are exposed to wider options that the business brings for them.
1 Its exact policy may vary but I have found very generous that warranty in Australia extends beyond one year.
2 Carol Dweck, Mindset - Updated Edition, Psychology