Click fraud is a well know type of Adwords fraud. Impression fraud is a lesser known tactic your competition could employ against your Adwords campaign.
The most obvious method of Adwords fraud is for your competitor to click your ad repeatedly. This called click fraud. The hope is that this will exhaust your daily budget and cause your ads to stop running.
Click fraud has the unintended side effect of raising your CTR. A higher CTR is a higher quality score and then a lower CPC bid. This offsets the damage, and prevents this fraud from becoming more rampant
A second type of fraud is impression fraud. Here, your competitor disables his ads and then proceeds to search for your common keywords. The attack is designed to create a large number of impressions of your ad with clicking the ad. This lowers your CTR. Your ad could have it’s position lowered, or become disabled due to the lower CTR. This allows the competitor to obtain higher ad position.
There is no side effect offsetting impression fraud. However, an advertiser is not likely to turn off his ads during prime business hours. The fraudster would likely wait until the early morning hours where there is little traffic. This would make a good time for him to disable his ads and inflate the impressions on his competition. A spike in impressions during normally low traffic periods could be an indication of impression fraud.
Google is quite capable of recognizing multiple identical searches from a single computer or network. Adwords should be able to identify a large number of any impression fraud attempts. But, there may be large, sophisticated networks that could appear to be from many different sources, thus fooling Google.