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Last Updated: Tuesday, 20 May, 2003, 09:13 GMT 10:13 UK
Warranties face 'radical shake-up'
A radical shake-up of the market for offering extended warranties on domestic electrical goods has been proposed by the UK's Competition Commission.

Key proposals include greater information for consumers, a cooling-off period for people buying extended warranties and a curbing of pressure sales tactics.

But the commission has stopped short of suggesting that the Dixons Group - the UK's biggest electrical retailer, with slightly less than 25% of the extended warranty market - is operating a "scale monopoly".

Overall, consumer groups have welcomed the commission's proposals as "striking a blow" for shoppers rights.

Investor cheer

The inquiry into extended warranties follows a damning report by the Office of Fair Trading (OFT), published in July 2002, which concluded self-regulation had failed.

This letter strikes a blow for consumers and makes grim reading for the electrical retailers
Sheila McKechnie, Consumers' Association

To date the Commission has said it is investigating large players in the warranty market such as Dixons, Argos, Littlewoods, and insurance companies Cornhill, Landmark, Pinnacle and London General, among other companies.

But in a letter to domestic electrical good retailers the Commission has said it was unlikely to find that the Dixons Group was operating a 'scale' monopoly in the sale of warranties as the firm had slightly less than 25% market share.

This will cheer Dixons investors as the retailer had been regarded as most vulnerable if the authorities launched a crackdown.

"It's a pretty good result for Dixons. They have not been deemed as a scale monopoly and the stock market should be quite relieved," said Nick Bubb, retail analyst at brokers Evolution Beeson Gregory.

However the Commission did not rule out the possibility that a complex monopoly situations may exist within the sector, in favour of electrical goods retailers who offer extended warranties at the point of sale.

Pyrrhic victory

In the letter the commission added it favoured encouraging competition with proposals that would force retailers to provide much more information on pricing of warranties and more choice.

What is more, it also suggested a cooling-off period for buyers of extended warranties and curbs on aggressive selling practices.

"This letter strikes a blow for consumers and makes grim reading for the electrical retailers... Dixons may feel it is off the hook as a scale monopoly, but as it has been caught as major player in complex monopoly this is a somewhat pyrrhic victory," Sheila McKechnie, director of the Consumers' Association said.




SEE ALSO:
OFT appeal to consumers
26 Oct 02  |  Moneybox
Q&A: Extended warranties
22 Oct 02  |  Business
Warranty buyers 'losing out'
15 Oct 02  |  Business


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