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We determine the optimal timing for replacement of an emerging technology facing uncertaintyin both the output price and the arrival of new versions. Via a sequential investment framework,we determine the value of the investment opportunity, the value of the project, and the optimalinvestment rule under three different strategies: compulsive, laggard, and leapfrog. In the firstone, we assume that a firm invests sequentially in every version that becomes available, whereasin the second and third ones, it can choose an older or a newer version, respectively. We showthat, under a compulsive strategy, technological uncertainty has a non–monotonic impact on theoptimal investment decision. In fact, uncertainty regarding the availability of future versions mayactually hasten investment in the current one. Next, by comparing the relative values of the threestrategies under different rates of technological innovation, we find that, under a low output price,the compulsive strategy always dominates, whereas, at a high output price, the incentive to wait fora new version and adopt either a leapfrog or a laggard strategy increases as the rate of innovationincreases, while high price uncertainty mitigates this effect

When Is It Better to Wait for a New Version? Optimal Replacement of an Emerging Technology under Uncertainty