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itself. The changes can be of two kinds: it can change what it produces, or it can change to whom it sells. Or it can change both. The choices can be diagrammed something like the following:







The diagram suggests four paths of adjustment. That is, either:

  • the firm's old product continues to be sold to the same customers as before (which can be thought of as "zero adjustment");

  • the old product is sold to new customers;

  • a new product is developed for the old customers; or

  • a new product is developed and sold to a new group of customers.

Now, of course, this is very simplistic. In reality, things are not so clear-cut. When does modification of an old product become a "new" product? When does narrowing or broadening of an existing market go so far as to define a new market? And so on.

So far, this is a general scheme for a genetic firm. Does it—can it—apply to a Russian defense enterprise? There are certainly many differences between the situation of an American automaker, say, which is suffering a sales slump, no matter how severe, and a Russian tank manufacturer which sees its orders virtually disappear overnight. For one thing, the reduction in demand for the Western firm was probably gradual. This means that a firm has some time to adjust. This is clearly an advantage.

An even bigger advantage for the Western firm is the existence of a competitive market. Suppose a capitalist firm experiences a rather sudden drop in demand for its product. How does it react? Unless demand for that product just vanished altogether, the drop in demand for the product of one firm shows up as increased demand for someone else's product. This means that the losing firm has a good chance to ascertain why the drop occurred. That winning firm's product was of better quality; it was less expensive; it was marketed better; there was better after-sales service. The losing firm can try to

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