Strategic decisions by IT firm when new technology substitutes old one

In order to promote its profit, IT firm continually issues new technology. However, the old one still exists and has some power of attraction when the new product enters market. Then how to make new technology substitute old one becomes a critical problem. This paper builds a simple model to analyze the problem. This model focuses on the pricing strategy and compatibility decision of IT firm with considering the characteristics of network externality and the existence of switching cost in IT industry.