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Dixons has ‘scale monopoly’ in extended warranties

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The Competition Commission today set out the terms of reference of its investigation into the UK market for extended warranties on domestic electrics. Worth an estimated £800m a year, EWs cover the UK PC retail business as well as the white and brown goods sectors.

Extended warranties are very, very profitable, hence pressure selling frequently at the point of purchase. According to the Consumer Association, EWs are a waste of money - it's cheaper to pay for repairs as and when, a point fiercely disputed by retailers, which accuse the organisation of using false data.

The Commission is looking at the market, following a request last year from the Office of Fair Trading. According to the OFT, "competition in the market did not appear to be working effectively and that consumers were not adequately informed or protected".

The Competition Commission says that on evidence received so far, Dixons, the UK's biggest electrical and electronics retailer, looks to have a "scale monopoly" with at least 25 per cent of EWs on domestic electrical goods. The Commission wants to examine if there is a wider complex monopoly in the market, involving other big retailers such as Argos, Comet and John Lewis, and the insurers which are active in this market, namely Cornhill, Landmark, Pinnacle and London Genera. Neither train of thought implies any adverse finding on any company, the Commission says.

The Commission will also look at possible issues over uncompetitive pricing, restricted choice, front-loading of payments, unfair Ts&Cs and uninsured cover.

Uninsured or underinsured cover leaves customers very vulnerable in the event of a company crash, as people who bought goods from Tiny Computers and Tempo found to their cost. A company that gets into financial problems can be tempted to dip into the extended warranties money pot and or cut or scrap premiums. This means that no other retailer will buy the business - because of massive liabilities that they could face.

The Competition Commission will surely ringfence extended warranties provision, and it will surely impose some restrictions. And customers will surely be more alert to the cost of EWs, so more will stay away in droves. This will strike at the heart of the profits of retailers of electrical and electronics goods. ®

Related link, story

Competition Commission press release
Extended warranties: are they a con or what?

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