Personally I wouldn't give in to his demands or raise our offer just to compete with Chelsea and Utd. Until now we have paid inflated prices just because we're City, not only in regards to wages but also in transfer fees.
Now that we have won the league, and are definitely here to stay, I don't see why we need to offer so much higher than everyone else to attract players.
The way we won the league should alone attract players to us. The quality players we have in the team should attract players to us.
If you were to sign for a club now, would you choose one which has a different manager every few months, or would you prefer to play with the likes of Welbeck, Ji Sung Park, Young and Nani rather than Aguero, Silva, Toure, Kompany?
Sanchez did that with Barcelona, I'm sure we could have easily offered him more money, but no he wanted to go to Barca, and rightly so, they are the best team in the world. Playing with the likes of Messi, Xavi and Iniesta? At least he had some respect not only for himself but also for the other teams involved and stated that he only wants Barca.
If Hazard comes then cool, if not then FUCK him. Whoring himself off like that. Even if he does go to Chelsea or to Utd, they are both still worse than us, there squads needs far more improvement than ours does.
There are other options out there, Belhanda (would be alot cheaper), Goetze, Munian, Kagawa (even though he's linked with the rags, if they get Hazard, I cant see them going for him also).