Software Piracy: An Analysis of Protection Strategies

Kathleen Reavis Conner and Richard P. Rumelt
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Kathleen Reavis Conner: The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104
Richard P. Rumelt: Anderson Graduate School of Management, University of California, Los Angeles, California 90024-1481

Management Science, 1991, vol. 37, issue 2, 125-139

Abstract: Software piracy by users is generally believed to harm both software firms (through lower profits) and buying customers (through higher prices). Thus, it is thought that perfect and costless technological protection would benefit both firms and consumers. The model developed here suggests that in some circumstances, even with significant piracy, not protecting can be the best policy, both raising firm profits and lowering selling prices. Key to the analysis is joining the presence of a positive network externality with the fact that piracy increases the total number of program users. The network externality exists because consumers have an incentive to economize on post-purchase learning and customization costs.

Keywords: software; computers; piracy; strategy; network externality (search for similar items in EconPapers)
Date: 1991
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