How many pirates should a software firm tolerate? An analysis of piracy protection on the diffusion of software

This paper examines the relationship between the rate of software diffusion and piracy. Literature suggests that tolerating some piracy can be justified since it speeds up software diffusion. The question is, how much should be tolerated? Using innovation diffusion models of software adoption by legal buyers and pirates, answers to this question are obtained for the three scenarios of monopoly, multiple generations of software and competitive markets. Results include, for example, that a monopoly should start with minimum protection of its software but well before the product has diffused half way, impose maximum protection and maintain it thereafter. The results provide important strategic guidelines for firms in the software industry for managing piracy