IPR Regulatory Policy, Commercial Piracy, and Entry Modes of MNC: A Theoretical Analysis

Abstract

The present paper tries to link the IPR regulation rate chosen by an LDC government to the mode of entry chosen by an MNC firm in an LDC market where the options are export, fragmented production structure with assembly line FDI in LDC or complete production in LDC with full technology transfer. The last two options allow the possibility of entry of a pirate who can be deterred either by incurring anti-copying investment by the MNC or by the LDC government's enforcement in the form of monitoring. We show that if the transport cost of sending semifinished product from DC to LDC is below a critical level the fragmentation mode of entry is always chosen. Further if monitoring is socially optimal, entry of the pirate cannot be deterred.