Why do Software Manufacturers Tolerate Piracy in Transition and Less Developed Countries? A theoretical model

This paper provides an explanation as to why software manufacturers from developed countries tolerate widespread copyright infringement in less developed countries and often even offer local versions of their products. In a simple two-period framework, I show that if network externalities are present and an improvement in copyright enforcement is expected, then it is profitable for the software manufacturer to enter the market even if it incurs losses in the beginning when copyright enforcement is weak.