This paper explores the nonmonotonic evolution of firm numbers in a competitive industry, using a model where innovation opportunities attract firms to enter, but their failure to implement new technology leads to exit. The model is applied to 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 causing the exit wave, rather than changes in automobile sales. The model's parameters are estimated from firm numbers, industry output, and tire prices, revealing that the impact of industry-specific innovation on costs is much larger than general productivity growth. The model also predicts a time path for share values that aligns with stock price data. The paper concludes that the transition from low to high tech required a significant expansion of scale, leading to substantial rents for early adopters and making the transition difficult.This paper explores the nonmonotonic evolution of firm numbers in a competitive industry, using a model where innovation opportunities attract firms to enter, but their failure to implement new technology leads to exit. The model is applied to 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 causing the exit wave, rather than changes in automobile sales. The model's parameters are estimated from firm numbers, industry output, and tire prices, revealing that the impact of industry-specific innovation on costs is much larger than general productivity growth. The model also predicts a time path for share values that aligns with stock price data. The paper concludes that the transition from low to high tech required a significant expansion of scale, leading to substantial rents for early adopters and making the transition difficult.