Being aware of the Red Queen Effect is not enough to guarantee success. Once you have come up with a concept that is foreign to your competition, you need to make sure you can move the new product or service past the idea phase, which usually requires capital, know-how, and the willingness to take risks. 

The evolutionary ‘arms race’. 

In the Selfish Gene, Richard Dawkins describes the “unequal cost of failure” in the evolutionary ‘arms race’. He describes the life/dinner principle captured in Aesop’s fables: “The rabbit runs faster than the fox, because the rabbit is running for his life while the fox is only running for his dinner.” There is a linked push to evolve and improve, with better adaptation in one species driving the other to make its own ‘leap forward’ to survive. 

Buffet and developments in the textile industry. 

The Farnam St Blog outlines the Red Queen Effect in some detail and includes the story of Buffett's approach to investing in the textile industry. Buffet wrote: 

“Over the years, we had the option of making large capital expenditures in the textile operation that would have allowed us to somewhat reduce variable costs. But the promised benefits from these textile investments were illusory. Many of our competitors, both domestic and foreign, were stepping up to the same kind of expenditures and, once enough companies did so, their reduced costs became the baseline for reduced prices industrywide. 

“Viewed individually, each company’s capital investment decision appeared cost-effective and rational; viewed collectively, the decisions neutralized each other and were irrational (just as happens when each person watching a parade decides he can see a little better if he stands on tiptoes). After each round of investment, all the players had more money in the game and returns remained anemic.”

The name of this concept originated from Lewis Carroll’s famous sequel to Alice’s Adventures in Wonderland, Through the Looking Glass, where Alice observes that she needs to run faster and faster just to stay in the same place; the Red Queen’s reply to Alice’s perplexity is ‘Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!’

Evolutionary biologist Leigh Van Halen proposed the Red Queen hypothesis in 1973 to describe the constant race that co-evolving species engage in order to survive in a constantly changing environment populated with opposing organisms.