Page Optimization Based on Competitors?

Is it better to optimize based on what the competition is doing for a specific keyword or based on standards? For instance, my keyword "red widget" is 4% for my page but the top 10 spots in Google are at 0.7% density. Throw in about 20 more factors where all seem to be over optimized on my page. Should I try to break it down a bit and under optimize my site so it doesn't look spammy? Or stick with what I think is best such as 2-4% kw density in page?

I'd stick to what I know and do best. Many of my "competitors" don't really know what they are doing... so if I optimize to their levels I'm actually closing the gap between us.

I never try to "play down to the competition"... I would rather do it right and "blow by the competition".

As long as you don't go overboard with onpage optimization, you will get rewarded.

I do on-page optimization with the help of a program called Internet Business Promoter, which basically assists you in optimizing your pages in relation to your competitors. It has always worked well for me, with one of my older sites ranked within top 10 on Google, and one of my newer sites getting closer (top 15).

My biggest competitor is ranked around 5 or 6k for Alexa, so I think it would be best, for me, to try to optimize in relation to them, for now, since they have major authority.