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As a matter of fact, all consoles compete with each other all the time, including handhelds, including consoles of the same company competing against each other. It's called the market. Type and focus of the competition vary, and that's all because of the marketing mix : the consumer, the price, communication, point of sale. HD consoles are competing with PS2 too, they're competing with handhelds as well. Hey, even phone games are part of this market, don't forget PC gaming either.

I'd go as far as saying the Wii is competing very strongly against games such as Scrabble, Bingo, Domino, many other board games and several pastimes non-videogamers (specially) enjoy.