This paper demonstrates that there is a strategic reason why software firms
have followed consumers’ desire to drop software protection. We analyze
software protection policies in a price-setting duopoly software industry
selling differentiated software packages, where consumers’ preference for
particular software is affected by the number of other consumers who
(legally or illegally) use the same software. Increasing network effects make
software more attractive to consumers, thereby enabling firms to raise prices.
However, it also generates a competitive effect resulting from feircer competition
for market shares. We show that when network effects are strong,
unprotecting is an equilibrium for a noncooperative industry.