The paper examines the nonmonotonic life cycle of a competitive industry, where the number of firms first rises and then falls. This phenomenon is explained by a model in which innovation opportunities lead firms to enter, but failure to implement new technology causes firms to exit. The model is estimated using data from the U.S. Automobile Tire Industry, which experienced a significant shakeout in the 1920s. The data suggest that the invention of the Banbury mixer in 1916 was the key event that triggered the exit wave, as it significantly increased the optimal scale of production for firms. Other major inventions in the tire industry did not have the same effect. The model incorporates the idea that technological advancements can reduce production costs and increase firm size, leading to changes in the number of firms. The paper also discusses the implications of innovation for firm entry and exit, and how the model can explain the observed patterns in the tire industry. The model is parameterized and compared to data, showing that it fits the observed trends in firm numbers, output, and prices. The paper concludes that the life cycle of a competitive industry is shaped by technological change and the response of firms to innovation opportunities.The paper examines the nonmonotonic life cycle of a competitive industry, where the number of firms first rises and then falls. This phenomenon is explained by a model in which innovation opportunities lead firms to enter, but failure to implement new technology causes firms to exit. The model is estimated using data from the U.S. Automobile Tire Industry, which experienced a significant shakeout in the 1920s. The data suggest that the invention of the Banbury mixer in 1916 was the key event that triggered the exit wave, as it significantly increased the optimal scale of production for firms. Other major inventions in the tire industry did not have the same effect. The model incorporates the idea that technological advancements can reduce production costs and increase firm size, leading to changes in the number of firms. The paper also discusses the implications of innovation for firm entry and exit, and how the model can explain the observed patterns in the tire industry. The model is parameterized and compared to data, showing that it fits the observed trends in firm numbers, output, and prices. The paper concludes that the life cycle of a competitive industry is shaped by technological change and the response of firms to innovation opportunities.