It happens in any type of economic system, except in capitalism, it happens much slower. I'd prefer eventual stagnation with the possibility of reviving innovation to a forced stagnation by a particular economic system.
I wouldn't consider capitalism an economic system. It is more of a description of the behavior of organisms. Free markets naturally produce monopolies just like humans have monopolized Earth. Once the monopoly is achieved, the motivation to innovate diminishes along with the entity's competitiveness. Eventually, someone will challenge the monopoly-holding alpha entity and the cycle continues. It happens in economies, societies, ecosystems, and any domain where evolution takes place.