I am breaking this down into two answers...one for retail locations and one for shows.
I ran a card store for a couple years and always allowed (even encouraged) my customers to trade cards for cards. As long as there was no cash changing hands, I was fine with this. The net result of this - and other similar policies designed to create a hobby-friendly environment - was a customer base that grew quickly over a relatively short period of time. Others may disagree, and that's fine. However, it was my personal experience that allowing customer trading positively impacted the bottom line.
Long story short, it brought people into the store...and once they got there, they had a great all-around experience. Take care of the customers and the sales will follow.
As for shows, that's a bit trickier to answer. I have done countless card shows, and always traded with customers. Personally, I found it to be a great way to grow my inventory. It also kept my selection of cards fresh. I also attracted quite a few customers who were thrilled at the trade-in value I gave for the cards I traded for...2/3 of the (condition adjusted) book price. So, if you wanted, say, a $40 card from my showcase (yes, I displayed them with the prices showing) and I wanted a card from you that was worth $60...I would take the trade...every time.
Some dealers have given 1/2 the value of a card when taking a trade-in, and I personally think that's fine, too. After all, there is overhead involved on their end, and they are setting up to make money. If most dealers approached trading this way, I might answer differently. My personal experience has been quite different, though.
It seems to me (from my limited perspective) that, on the whole, dealers are somewhat reluctant to trade. I have asked quite a few that have flat out said, "no." They don't even bother to look at what I have brought with me. The general gist of their logic is that they will buy something if they want it...and then I can spend that money on what they're selling. OK, I get it; however, when the cash offers come forth, they are usually at such a low percentage of the card's value, I figure it would be much better for ms to sell it elsewhere.
I also find dealers who offer to trade...but only offer 5-15% of a card's value when trading for it. This is after cherry picking the 2 or 3 best cards from the box. Again, I stand to do much better selling them elsewhere.
So,I personally think trading amongst collectors at shows is fine, if the dealers are not providing this service (at a level which does not resemble larceny) to the customers. I still think no cash should be changing hands...and do admit it would be tough to police. Still, I believe it would boost attendance and positively impact the bottom line for the dealers. Perhaps a dedicated trading section of the show...definitely not amidst the dealer tables.
As an aside...halfway through writing this, I realized how much I miss setting up at card shows. Perhaps I might start doing that again. And I would definitely be trading.
Sorry for the long post. Guess the topic meant more to me than I thought when starting to write it.
Happy collecting, everyone.
Best Regards,
Eric