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grade encouraged aiming for the higher grade.
The folly of many competition systems is to overly reward the one who takes the top position and punish the one who fails. This is a form of unhealthy competition, which gives rise to unhealthy expectations and fears in the students, and discredit by the public and parent. However, sometimes there is very little anyone can do to mitigate the impact of unrealized expectations. It is a side effect of competition, someone has to win and another loses. It is part of the game.

To counter this instead of acknowledging the top performer, a good system can include a recognition of those who made the greatest effort, the smart, the ones who made the greatest strides and the list can go on and forth. Investing in a healthy competition system would seem to me the best way of normalizing what otherwise could be controversial system.
Recently I attended a graduation ceremony at a primary school in an African country. One girl worked so hard for the top position but a new girl in her class took that position. The disappointment in the little girl was overwhelming. She refused to accept second position in the class and spent the remainder of the day crying.

Going back to Adam Smith, "Man was made for action, and to promote by the exertion of his faculties such changes in the external circumstances both of himself and others, as may seem most favorable to the happiness of all." (The Theory of Moral Sentiments, Part II Section III Chapter 3) and, "Such is the delicacy of man alone, that no object is produced to his liking. He finds that in everything there is need for improvement.... The whole industry of human life is employed, not in procuring the supply of our three humble necessities, food, clothes and lodging, but in procuring the conveniences of it according to the nicety and delicacy of our tastes (Lectures on Justice, Policy, Revenue and Arms).

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