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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.
I'd be interested in hearing what the potential downside could be.
I would agree with tedster on worst case scenario being neutral for both sites but I would still love to hear anyone elses thought on the subject?
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?