Old Technology Upgrades, Innovation, and Competition in Vertically Differentiated Markets

We study how the migration from an old to a new technology is affected by the access price to the old technology. 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, whereas the old technology persists when the incumbent dominates investment. 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