Old technology upgrades, innovation, and competition in vertically differentiated markets

In this paper we study how the migration from an old to a new technology is affected by the access price to the old technology, when it is set after investments have taken place. We show that both the incumbent and the regulator are willing to set a very high access price to accelerate consumers’ migration to the new technology. When the quality of the old technology is exogenous and the entrant dominates investment in the new technology, the old technology is completely switched off in equilibrium. On the other hand, when the incumbent dominates investment, the old technology persists. When the incumbent can decide on an endogenous upgrade of the old technology, the migration to the new technology is slowed down, and the entrant might be foreclosed.