> Seems like honest communication to me.
Extortion is honest communication, too. The existence of an offer doesn't do anything to help me decide whether or not I can go along with a pay increase. It only communicates that the employee wants to threaten me into agreeing to one.
In my opinion, the better way is to ask for the pay raise without mentioning the offer. If they I don't give them the raise and it's that important to them, then they should just take the offer.
> It is no different than giving customers a notice of price increase or giving contractors an option to bid.
I think it's very different from that, actually. You can require a raise as a condition to stay at the company without trying to use another offer as a weapon.