If they're out-competing you, they've got something you haven't. This may be:
- more updates
- more in-demand features
- more contributors
- better publicity
Whatever it is, try to find out what it is. If they're doing more publicity stuff than you, then increase what you do. Run things like community ads on Stack Exchange - they're free, and they get eyeballs on your project. Try to attract more contributors, or try to update more frequently.
Often, engaging with your community is fairly effective: if you're seen to be engaged and proactive about the development of your product, people will recommend you to others, who will also recommend you, and you might get some new contributors and users that way.
If you want to be a little ethically unstable (not that I recommend this), look at your license. Is it GPL? If so, theirs must also be GPL, meaning you can copy things they've done with some attribution. This may encourage people to use your version, because you now have the features they want too, but beware that if people find out you've been copying features and trying to hide the fact - although it's legally sound - it may not give you a very socially sound position. Of course, if your licenses are compatible, you can just copy the features and be open about it :)
Ultimately though, there may not be a huge amount you can do. However, you can console yourself with the fact that you started it, and that your copyright notices will forever have to live on in the code of their fork.