I see no problem with trading competitions, these people are the day traders. There are other investors who are long term holders and will be holding the coins. I believe if the project is good, it will attract long term holders. The trading competitions should not have much impact.
I am not sure what people will do in a trading competition, if they keep buying different different coins and tokens then it will give short term impact but if they buy and then sell then there will be no impact on price levels but they can still show more volume for the sake of competitions. I have seen many forex exchanges are conducting sclaping based trading competitions which is purely for showing high volume and price will never get impacted much.
It will give an impact, for sure. At least in the short term. It could increase the daily volume and no exception with the price. The token/coin being promoted will get attention as well.
If exchange is about listing on few assets for the competitions then those assets will be on top on daily volumes. Usually for example, bitterex show top volume coins in moving banners and I am sure that will attract more attentions from traders and investors but not sure a competition driven will do the same or not.