Conflict occurs because we have a character with a goal and something gets in the way of that goal.
In order to keep the audience's attention, we need to start the conflict out small and make it larger as the story progresses. We need to escalate it. I gave the example of Die Hard where Bruce Willis destroys a helicopter at the beginning of the movie and destroys an F-16 fighter jet at the end. The jet is a bigger menace than a helicopter, therefore, Bruce needs to face it after he faces the helicopter.
We watched "Billy's Balloon" to see how Don Hertzfeldt escalated the conflict. He started with one kid being beaten up by a balloon, escalated it to the kid being dragged up into the sky and dropped, and then to seeing another kid being dragged up by a balloon to be hit by a passing jetliner. Then we saw more balloons attacking more kids until the entire screen was filled with the mayhem.
The conflict escalated. However, the conflict was limited because there was only one active character: the balloon.
To see what happens when two active characters come into conflict, we watched "Parking," by Bill Plimpton, where a plant tries to destroy a parking lot while the parking lot's owner tries to stop it.
The parking lot owner begins by merely pulling the plant out of the ground. But then he uses a mower, then a jackhammer and metal plate, then a cannon, then dynamite. He starts small and gets bigger. The plant reacts in the same way, each time sending back larger counter attacks: first in bug poop, then flying screws, then the cannon ball, then the dynamite.
The conflict HAS to escalate, otherwise, the audience loses interest.
The schema above shows how the basic story structure goes. The protagonist makes an attempt at reaching the goal, but the antagonist stops him/her. So the protagonist makes an even larger attempt at reaching the goal, thus, the conflict between the protagonist and antagonist is larger. Finally the protagonist puts his/her absolute all into achieving the goal, resulting in the largest conflict with the antagonist. In the last event we see whether the protagonist is successful at overcoming the antagonist and reaching the goal.
We also saw in "Parking," that the two contesting characters must reach a "point of no return" in order to really invest the audience in their conflict. It has to be an all or nothing affair, win or lose, no backing out. Otherwise we've limited the effect of the conflict.
