Software lends itself very easily to piracy, especially in the Internet era, costing software manufacturers billions of dollars per year. Three issues nicely reported on by the authors are the amount of piracy that actually takes place, how much local income levels affect piracy, and how companies can differentially price their products to discourage piracy.

The Software Publishers Association and Business Software Alliance routinely report that software piracy losses total over 10 billion dollars per year in an industry with sales of 140 billion dollars. But as the Software Information Industry Association reports, about half of that piracy occurs in North America and Western Europe, two regions where income levels are high enough that such levels of piracy are difficult to justify. It is apparent that software manufacturers need to address the problem in their home markets first.

That said, about half of the piracy takes place in regions of the world where income levels are lower. As the authors report, there are correlations between per-capita gross national product (GNP) and piracy rates around the world. It is difficult to fight such piracy by relying solely on global intellectual property mechanisms, since enforcement is difficult for such governments, even those willing to deal with it. A more effective way to fight piracy is to set local pricing closer to the consumer’s willing-to-pay price.

Many companies price their products with the US markets in mind, even though US incomes are orders higher than those of most other countries, inviting piracy. The authors suggest, as one solution, that software manufacturers adopt price discrimination policies--for example, that they index the price of software to the per-capita GNP in countries where they sell their software. As consumers in these countries buy software to increase productivity, productivity then rises, GNPs rise, and the manufacturers can raise their prices accordingly. They would have to take steps to prevent gray market sales (buying software at a legitimately low price in one country, and importing it for resale into another market where the prices are higher), but overall, such changes would discourage piracy and increase profits, serving the best interests of all. Software manufacturers might well want to consider the observations and proposals contained in this article.