China

If you can appropriate rent after locking in an installed base, and if you have large "demand side" positive externalities, it can make sense to wink at pirates. When Microsoft selectively chooses to crack down on piracy, it's price discriminating between corporations (who can pay) and individuals (who really cannot). Having a larger installed base gets those positive externalities kicking in and allows the company to charge more to those who can pay.

This Salon article talks about Microsoft now allowing piracy in China. This is a direct result of the Chinese government threatening to switch to Linux, forcing Microsoft to essentially cut its prices (by allowing unauthorized copying).