Abstract Humans compete for jobs, promotions, income, status, and many other scarce goods. In some situations, allocating scarce goods via competition is socially beneficial. In other situations, competition is not necessary to allocate goods, and nevertheless engaging in competition creates inefficiencies and welfare loss. We use an incentivized lab experiment to study whether people compete differently depending on whether allocating scarce goods via competition is socially wasteful or socially beneficial. We find that competition behavior is strikingly similar in situations where competing is socially wasteful and socially beneficial. Accordingly, there is large excess competition in situations of wasteful competition, creating considerable efficiency losses. We find evidence of a social trap involved in this excess competition. People are considerably more likely to compete if they believe others compete, and their beliefs on others’ competition are similar in situations where competing is socially wasteful and socially beneficial. Interventions aimed at lowering beliefs on others’ competition may be an effective method of lowering excess competition to prevent inefficiencies and welfare loss.