From The Alphamarketer:
So when we use Google Adwords, or other advertising methods, we need to not only look at what we are paying per keyword, but also to build into the cost what we project as fraudulent clicks.
The problem with click fraud is not just that it artificially increases advertising costs, PPC is still way cheaper and easier to measure than nearly any other type of advertising (including direct response) if you “build in the cost”. This is ok because as a hyper efficient market adwords prices with adjust with the market, no biggie.
But when your competitors are using click fraud to give themselves an advantage in a compeitive market, that’s when things get dicey. In mature niches, bid prices will have climbed to the absolute brink of profitability, and may well have passed that point for many companies, and if your competitor can manage to raise your costs even higher (either by faking impressions to lower your CTR and hence your position, or by faking clicks to max out your budget), you won’t be able to afford to bid. This is very often the case with small businesses.