Think about it. In theory, people searching for your competitors’ products/services should also be interested in your products. This should be extremely high quality traffic.
People are rarely loyal these days. Price, value and quality are the 3 perceptional pillars in which we think about before people buy. If these factors are satisfied by your company then adding in an alternative option is fair game.
Is it legal? Google state in their Adworks Behaviour Guidelines that this is legal. Once you don’t mention your competitors brand names directly you are well in your right to target them.
So to start, create a new campaign called Competitors or what ever you like. Add in Adword groups for each individual competitor. Then use broad phrase match to target the company name, brand name, product name etc. Create maybe 2-3 ads for each adgroup. If they are similar products then the same adverts can be used across the campaign.
You don’t want to rank first on the page. Leave this to your competitor. Ranking 2-3rd position is optimum as you want to remind the person that they have another option. Therefore keep the bid as low as possible. Brand names tend to be lower cost than generic keywords so this is a great cost effective way to win some business from your competition.
Final tip: Make sure you have a valid offering or point of difference to the competition in the ad and don’t forget a good call to action (watch, listen, download, buy, access….)