The theory of species coexistence predicts avoidance between species that compete for similar resources. Recent studies, however, have suggested that facilitation is also possible if competitor density provides information about resources. Optimal solution to trade-off between competition and facilitation is predicted to occur at intermediate competitor densities. We tested this hypothesis by experimentally creating a density range of resident tit species (Parus spp.), and measured the response of a competitively subordinate migratory bird, the collared flycatcher (Ficedula albicollis) in terms of habitat preference (settlement order and density), offspring investment (clutch size and primary sex ratio of offspring), and reproductive success (number and condition of nestlings). We show that most habitat choice and investment decisions of flycatchers were unimodally related to tit density, whereas reproductive success decreased linearly with increasing density. Flycatchers thus made mismatched investment decisions at the artificial tit densities because manipulation disassociated the natural correlation between habitat quality and population density. Apparently low and high tit densities were perceived as indication of poor quality habitat in terms of low amount or quality of resources/high mortality risk and high costs of competition, respectively. This demonstrates that competitor density can be used in assessing overall habitat quality in habitat selection and offspring investment decisions, integrating information on resources and competition.