Anarchy factions go extinct everywhere players are.

Frontier's background sim could (should) create new outposts on the edge of civilisation... with new factions. In some places, they would be The Powers expanding, or local factions with serious influence. But in other places, they would be organic, anarchic factions only interested in making money.

The central systems would become more civilised, and the edges would expand with little regard for law and order.

This is exactly what I was thinking, and what is probably most realistic. As civilization expands, the anarchic areas become organized and governed and those who want to live under anarchy move to the fringes of the settled areas. Colonizers, pirates, explorers would move out to the edges and expand the settled galaxy with governments slowly following them as population grows.
 
If the pirate factions have they lost influence because players are working against them and pirates are not working for them then the solution is for pirates to work for local factions or they won't have many stations/outposts to work from surely?
 
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