This study investigates how rank-based reward systems in schools shape student effort and peer learning. In competitive environments, classmates serve both as rivals for rewards and as sources of academic support. Using nationally representative U.S. high school panel data and refugee student placement records, the paper examines how changes in ability composition affect student behavior under different competition policies. A theoretical tournament model predicts that introducing higher-ability peers reduces incumbent students’ effort and willingness to assist classmates, especially where academic recognition depends on relative ranking, while lower-ability peers generate the opposite effects. Empirical results support these predictions: high-performing students in competitive schools spend less time on homework and lose positive peer-learning benefits when stronger peers enter cohorts.