Abstract
This paper analyzes the strategic incentives of a proprietary software (PS) firm to manipulate software copy protection in response to the diffusion of pirate proprietary software (PPS) copies, as well as software compatibility/incompatibility with an alternative open source software (OSS) solution. We show that the existence of software piracy enables the PS firm to achieve higher profits than when piracy is prevented. A key mechanism at work is that investing in software copy protection allows the PS firm to increase the price of its PS product. From a regulatory point of view, we find that software compatibility with the OSS solution is a necessary condition to achieve a welfare-improving equilibrium, whereas the welfare-enhancing feature of piracy is not always proved.JEL classification: L11, L82, L86.
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