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Extended warranties: are they a con or what?

Competition Commission aims to find out

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Dixons is Europe's most profitable computer retailer, and its success in selling extended warranties on computers plays a big part in its success.

But extended warranties for electronics goods, touted by all the big retailers, are not popular with consumer rights groups. What is the point of shelling out £200 or more for a five-year contract on a PC which cost maybe £650 in the first place, they argue.

Why on earth are people buying warranties for washing machines - cheaper 99 times out of a hundred to pay-as-you-go repairs. Maybe it's high-pressure sales tactics that's 'forcing' punters to buy inappropriate, expensive protection.

That's what the Competition Commission intends to find out. Yesterday it received a request from the Office of Fair Trading to examine the market in extended warranties - worth £500m a year - in the UK.

Following a nine-month investigation into the business, the OFT concludes that "competition in the market did not appear to be working effectively and that consumers were not adequately informed or protected". And self-regulation doesn't work.

Dixons and Kingfisher, the UK's two biggest electronics retailers, are outraged. The OFT has "misdirected itself", the referral's "unjustified"; the market's "highly competitive" etc. etc. There's a lot of huffing and puffing, except from Asda, Wal-Mart's UK sub, which says: "extended warranties simply a marketing ruse designed to dupe customers out of parting with their cash for little or no benefit."

That's got it just about right. ®

Acknowledgement
All quotes are from the FT, which we have stopped linking to since it made stories older than seven days old available only through paid subscription.

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