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Competition is good, but it depends on your mission. If your mission is to see who the fastest reader or runner is, then a competition makes sense, because you're focus is on the fastest. But if your mission is to get people to read more or to get physically fit, then competition may not be the best way to fulfill that mission. Such competitions can discourage those who need it most. It's the difference between a gym class and an athletic competition. We expect an athletic competition to focus on the best, but if a gym class focuses on the best, it can be counterproductive, in that it discourages those who most need physical fitness training.
But if competition is to be used, perhaps there could be tiers of competition. Even if the rules require the books to be at your grade level, it encourages people to read the shortest and easiest books available at that level. You could have tiers of competition with one tier being books at your grade level, another for books higher than grade level, and another tier for books at an even higher level.
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