Would love to hear some feedback from anyone who is in a competitive market trying to reach the top 5 in page 1. Let me lay an example out on the table.
EXAMPLE: If you have a competitor www.widgetcompetitor.com who is ranking in 2nd-3rd place for all competitive keywords like: (order widgets, buy widgets, widgets information...) in your same niche and your site www.widgetinfo.com is ranking in page 3-4, would it be wise to exchange articles with dofollow links on each sites blog.
It helps (or at most is a net neutral) in every case I've been involved with where the two sites were cooperative enough to give it a try. It reminds me of when I was in retail management and would sometimes send customers to a competitor. The customers appreciated and remembered the service, and that was a net gain.
I'd be interested in hearing what the potential downside could be.
I can't see how it could hurt from an SEO perspective. If you want to do it, do it. I also can't imagine why there would be a penalty for linking from one page to another. That's what the interweb does. That's how PageRank works. And that's why trackbacks exist.
From a traffic control perspective, people might click over to look at your competitor, and like their site better. So... open the link in a new window or tab so yours stays open. ;)
You could also frame up their site the way other portals do - leaving a "go back to my site!" strip across the top. I hate those things, but they do serve a purpose.
Think about your users. Does it enhance their experience to have links to your competitor?