What importance does competition assume in state models for performance-based funding in German higher education? This is the guiding question of this presentation. With a view to answering it the presentation commences by introducing shortly into the relevant characteristics of the German higher education system. After that, an approach on how to operationalise incentives for competitive performance in formula-based funding is presented. Moreover, indicators used in formula funding models are presented. The presentation moves on to give an overview of the current level of dissemination of both target agreements and internal allocation procedures in different German Länder. It turns out that in 2007, 86% of universities used indicator-based models and that a further 12% were planning to introduce them. In addition, 29% of universities used target agreements and a further 28% intended to introduce them.