I often encourage a little competition by asking which one of them can get their legs the highest or having students watch someone who does the routine well. This is healthy competition that helps students attain self-confidence and set goals for themselves. I've seen many students surprise themselves with their own achievements once they make the decision to do so. Sometimes the impetus for these achievements is some friendly competition. When competition is healthy it is friendly, it's fun, and it's about being excited to learn a new step and respecting your friends and being excited for them when they learn something new.
Competition can easily turn serious and become unhealthy.
I had a young student not long ago, give me a whole list of reasons why she was jealous of her long time dance buddy. Though somewhat natural, her competitive nature was becoming unhealthy and causing her much upset and a possible ruin of a great friendship. Of course this student was handled quite swiftly in my class. Jealousy, lack of confidence and even a lack of friendships can result from unhealthy attitudes about competition. I often find that it is the parent that is more competitive than the child.