This is a real documented phenomenon. An example from the metalworking industry: the big steel companies could produce a variety of products with their process

This is a real documented phenomenon. An example from the metalworking industry: the big steel companies could produce a variety of products with their process, but smaller cheaper forges appeared that could produce certain kinds of material. These kinds of material had lower profit margins, so the big companies gave up that share of the market. The big companies profit margins got even better, the smaller mills were making money, everything looks better to the investors. Then the cheaper mills get better and can now do medium-grade work. That's still less profitable than the biggest work, so once again the big companies withdraw from that market when they can't compete on price and their profit margins get even better. You can see where this is going. There's nothing stopping the upstart that you're ceding some of your markets to from entering into your market and taking it over, and at that point you have no moat and no differentiation, while those companies have a full range of other products to fall back on and earn revenue. https://hbr.org/2015/12/what-is-disruptive-innovation https://hbr.org/2015/12/what-is-disruptive-innovation