||This thesis focuses on rarely discussed aspects of international investment incentives; it concentrates mainly on factors that determine the supplied amount of FDI incentives. The thesis presents two separate formalized models, each one representing a different approach towards the subject. Consequently, the most important findings are empirically verified by an OLS re-gression. The thesis suggests that the supplied amount of FDI incentives in Country A is corre-lated with the attractiveness of its competitors‘ incentive schemes, which implies that we cannot reject the weak hypothesis of incentive-based competition. We did not find evidence, however, to support the claim that the contest proceeds in line with our sharp-competition model, which leads us to reject the strong hypothesis of incentive-based competition among neighbouring countries.