New industries compete with established ones for labor, materials, and investment goods driving up the price of the resources
The old industries cannot pass on higher costs because demand is switching to new products
As old industries decline, new ones expand
Imitators invest with optimistic profit expectations based on the innovator's initial success
Overcapacity depresses profits and halts investment
This leads to depression, and innovation stops
Invention continues leading to a stock of unexploited inventions encouraging entrepreneurs to begin again
| Previous slide | Next slide | Back to first slide | View graphic version |