We look at the keywords a domain ranks for (or buys) and then find the competitors whose own paid or organic rankings closely match the same keywords.
​
However, there more to it to give you more relevant results.

While Amazon is going to have the same keywords that a specialty shop like baseballexpress.com does, we consider domains like homerunmonkey.com and baseballrampage.com to be closer competitors because a larger portion of their keywords match what baseballexpress.com has.