about 4-5 years ago google had confirmed that
Inbound links can’t harm your ranking because competitors would be able to harm your site by spamming thousand of low quality links.
However eecently Matt Cutts announced a change in Google’s policy.
The Google statement changed from:
There is nothing a competitor can do to harm your rankings
There is almost nothing a competitor can do to harm your rankings.
It is very obvious that your competitor can blast huge number of spam backlinks to your site using black hat seo tools.
So do you think spam backlinks can really harm your site seaarch engine rankings?
If we consider googles statement then we can easily come to conclusion that,
Neither spam backlinks harm your site nor they boost your site in SERP's, they are just ignored by google.
However this theory is not applicable every where, Lets see how
Effect of spam backlinks on old trusted site
Some SEO experts says that google compares spam backlinks with existing authority quality links of a site. If any site have very strong and consistent backlinks in past then google will simply ignore the blast of spammy links bombarded on that site.
Effect of spam backlinks on new site
off course google will penalise a new site for spam backlinks as it is obvious that no one will going to harm a site that itself is struggling to bubble up on first few pages of google search results.
How to prevent site from spam attack by competitor
To prevent your site from getting penalised by google for spam attack by your competitor you only need to get some authority high quality links from niche sites. This can be done by getting some permanant backlinks from reputed niche sites through guest posting. Also there are many gov and edu. sites/forums that allows registration and dofollow backlinks through profile pages, grab them they will help you in long run.
How this algorithm building Market Monopolies
Some big fishes that are having bunch quality websites are free to spam as google dont hunts out big fishes. These Market Monopolies are hunting small websites and pushing them dipper and dipper in serps.