This LinkedIn exchange asks why so many new entrants start up in growth industries when it’s obvious that most will fail. Another big case : during 2000-09 Europe added about 12 low-fare airlines – maybe 20 started and 8 failed? No – 60 started and 48 failed!

But I guess the industry dynamics make some kind of sense. In early years, the profit opportunity looks great (early airlines made >25% operating margins), so the big growth (>20%/year) makes you think you can grab enough business to be profitable, even at lower prices. What you don’t know is how many others are thinking exactly the same – but even if you do, you might suppose you can do OK against most of them and grab some niche in the market. It’s only afterwards the strategy looks foolish.
It’s made hugely worse in hi-tech because of the enormous power of the experience-curve cutting costs by 15-20% for every doubling of cumulative sales – great if you’re the one getting those sales, but not so great if you’re not. Here’s a link to a dynamic model of this process for a single firm – nothing to install, you just need a latest version browser.