How Cartels Create Shortages and Higher Prices: The Revenge of Frankenstein (1958)

the-revenge-of-frankensteinIn Terence Fisher’s The Revenge of Frankenstein (1958), Victor Stein (Peter Cushing) moves to Carlsbruck, Germany, in 1860 to set up a medical practice. Stein’s struggle against the Carlsbruck Medical Council to run a hospital for the poor illustrates an important principle of economics: When a cartel limits the supply of a good or service to the market, the result will be shortages and/or higher prices.

The doctors in Carlsbruck do not want a free market for medical services. Stein says, “When I arrived in Carlsbruck, without means or influence, and attempted to set up a practice, I was met by a firm resistance from the medical council which apparently exists to eliminate competition.” Stein is not welcomed in Carlsbruck because one more doctor practicing medicine will reduce the profits of the other doctors.

The Carlsbruck Medical Council, although fictional, mirrors the historical reality at the time. In late nineteenth century Britain “all doctors were registered with a central body, the General Medical Council.”1 According to Irvine Loudon, “in 1847 there was a large number of medical men competing for patients. Restricting the kind of practice permissible was a way of reducing competition.”2 Like the General Medical Council, the purpose of the Carlsbruck Medical Council is to limit the number of doctors who practice medicine.

The doctors on the Council are envious of Stein. In their meeting, they complain that he has “stolen” their patients. This accusation is false. Through the process of competition, Stein has simply proven himself a better doctor than his competitors. By becoming “the most popular doctor,” he is not only costing them money, but he also threatens the very existence of the Council. If a doctor can move to Carlsbruck and become successful without the Council’s support, then there is no need for the Council at all.

The Carlsbruck Medical Council is a cartel: “an organization created … between a group of producers of a good or service, to regulate supply in an effort to regulate or manipulate prices.”3 The Carlsbruck doctors are all charging the same price for medical treatment. If there were price competition, they would be complaining about “stealing” each other’s customers. Instead, they blame their loss of business solely on Stein. He is more successful than the other doctors because he offers better service and a lower price.

The doctors cannot beat Stein based on the quality of their service, so they want him to become a member of the Council. Dr. Molke (Arnold Diamond) declares, “he must be made to join.” If he joins, the doctors can continue to charge the same price, and their cartel will remain intact. If Stein refuses to join, Molke declares that Stein should no longer be allowed to practice medicine. He asks, “Where did he study? Where did he take his degree?” Strangely, Molke is speechless when asked how to prevent Stein from practicing, and none of the other doctors recognize the obvious solution to their problem.

The Carlsbruck doctors could shut down Stein’s practice by rejecting his foreign education and training in Switzerland. In Britain after 1858, the training for Doctors “shifted from apprenticeship towards schools and colleges.”4 In 1862, the General Medical Council “suggested that medical education should be based on a ‘four year course of study’ rather than a five year apprenticeship.”5 The switch from apprenticeship training to university education would give the Carlsbruck doctors complete control over the practice of medicine in the city. The General Medical Council had the “power to reject any qualifications regarded as unsuitable for the profession.”6 At the end of the meeting, the doctors decide not to prevent Stein from practicing medicine due to his education. Instead, they send three doctors to persuade him to join their cartel, a strategy that ultimately fails.

The doctors in Carlsbruck formed a cartel to reduce competition and to maximize profits. The inevitable result is a shortage of doctors and higher prices. The Revenge of Frankenstein shows the tragic impact a doctor cartel can have: Before Doctor Stein moved to Carlsbruck, many poor people could not afford a doctor. At the end of the film, after Stein flees the city, the hospital he established for the poor will likely be shut down.

Notes

  1. Stella V.F. Butler, “A transformation in training: The formation of University Medical Faculties in Manchester, Leeeds, and Liverpool, 1870-84,” Medical History 30, no. 2 (April 1986): 115, journals.cambridge.org/article_S0025727300045348.
  2. Butler, “A transformation in training,” 116.
  3. Investopedia, s.v. “Cartel,” accessed January 2, 2014, http://www.investopedia.com/terms/c/cartel.asp
  4. Butler, “A transformation in training,” 115.
  5. Butler, “A transformation in training,” 118.
  6. Butler, “A transformation in training,” 117.
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