Now I guess what I'm curious about is how did the practice get started, or why.
The first US commemorative coin was the 1892 Columbian Exposition half-dollar. The organizers of the Exposition were in need of funds to support staging the event and approached the US Congress regarding a "souvenir coin." The idea was for the Exposition to "buy" genuine US coins
from the Mint at face value (50 cents) and then sell them to fair goers for $1.00 -- the profits going to support the Exposition. Congress agreed to direct the Mint to strike up to 5 million souvenir half-dollars with a special Exposition design, and passed a law to such effect.
This "souvenir coin as a fundraiser" mentality was a primary driver behind every US commemorative coin that followed.
Many of the commemeratives are very regional in nature and to convince the federal mint to print a coin cellebrating such regional aspects of our history I would expect there must have been quite a competition.
The US Mint isn't actually the one that decides which or when commemorative coins are struck, it is the US Congress that decides such things. The Mint acts upon the direction it is given by Congress.
So, the competition you referred to really took place in Congress with Senators and Representatives in each chamber trying to get their pet coin bill passed so that they could please their constituents. US commemorative coins start with some (typically) local group wanting a coin to support their efforts to mark some "important" historical anniversary or current event. The group then enlists their US Senator/Representative who tries to work a coin bill through Congress. If successful, the bill is presented to the President for approval and signature. Only after approval by the President does the US Mint strike the coins. This is why so many US commemoratives have a very local theme -- the idea for them started at a very local level.
Hope that helps!
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