Well, Dragons have an obvious shortcoming. In a one-on-one combat, Balrogs are extremely difficult to get rid of, whereas Dragons have their common weak spot. When faced with a higher power, during the War of Wrath, the Balrogs were swept away easily, while the Dragons caused problems. Also, I believe there were Dragons of very different 'levels', and Scatha and Smaug don't seem to me as being top notch. Ancalogon and Glaurung, however, look like they were at least close to the ranks of the Balrogs.
Anyway, no matter how powerful Dragons were
exactly, they were quite a force in both fighting and cunning. I will happily concede that Balrogs are much better if somebody explains me how Melkor was able to create this force.
