I'm new to the Buffalo but looking around I can really see how a city like this could have had potential. I know the loss of trade from the Erie Canal played a part in the downfall, but it's in such a prime location and so close to Canada and Niagara Falls. I just wonder what reasons could have caused it to flatline as a city for such a long time.
It is really simple.
Buffalo failed to successfully transition into a service based economy from an industrial one.
Instead of investing in its man higher education institutes and research/technology base economic sectors, Buffalo quickly fell to the wayside.
Instead Buffalo focused on "urban renewal" schemes that has left much of the city blighted and was not sufficient enough to attract new people and business's.
The Main Street Pedestrian Mall, the Metrorail, the Main Place Mall, Convention Center, the Marine Midland Tower were all suppose to revitalize the city, but only served to sever the street grid and really were not the investments that were needed at the time.
Buffalo was and still is a finance hub, and there are some still R&D and research companies that survived, but as you said the potential was so much more. Companies like Bell Laboratories moved to places like Texas for tax reasons. With the proper investments into the right economic sectors, Buffalo could have been thriving instead, much like Minneapolis or Columbus which are also cold weather cities.
Nobody predicted that de-industrialization was going to become so bad. Nobody predicted the mass exodus until it was well underway.
But the city at least is finally on the right track again with many already successful and future economic diversification and redevelopment projects. Buffalo's decline might be a blessing in disguise as it left the city as one of the most affordable in the US to live in and has left many of the city's architectural gems in place.
/r/buffalo would be able to help.
It really wasn't on par with Chicago and NYC as by the early 1900s those cities were way ahead of buffalo in population and economy. It's more comparable with other industrial northern and midwestern cities like Detroit, Cleveland or St Louis. Read up on the rust belt and it'll clear up the main reasons. Arguable the best known example has been Detroit, so check out this and this as they cover most of the bases.
Incidentally, if you have the chance to visit Detroit, the downtown area is very nice and you could really see how much money and prestige the city had back in its hayday.