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How well liked are you? How replaceable are you? It could go either way.
You could try telling your employer you think you deserve a 20% increase because of reasons A, B and C, tell them what you think your open market value is and only mention this other offer that you don’t want if the market value is questioned.
Tread carefully, any time you tell an employer that you’ve been interviewing somewhere else, you put in their mind that you’re a flight risk. You have to really understand the relationship you have with your employer and your career future there to accept a counter offer.
I’d be careful in this market. At most places attrition is lower then planned so regardless of how well your individual team likes you leadership is less willing to approve matching offers to retain people. Usually for this strategy to work you have to be willing to leave and I would be prepared for them to say no.
And if you are really under paid by that much and they do match you will likely be higher in the pay band then your peers and your raises will likely be horrible for the foreseeable future.