What are the risks of using an escalation clause?

The biggest risk of an escalation clause is that it can reveal your maximum price to the seller, especially if they ask for proof of a competing offer, which weakens your negotiating position on anything beyond price. It can also push your final price higher than a flat, well-researched offer would have needed to be, since the clause reacts to whatever the highest competing bid turns out to be. Some sellers and listing agents also simply will not accept them. Joel Boss can tell you when a flat offer serves you better.