Extended warranties typically can add around 50% to the cost of an electrical good, and most are sold by the large multiple electrical retailers.
In general, consumers are offered only one supplier's extended warranty and terms, and are given no information about other suppliers’ warranties, or about the likely costs of repairs in the future.
The investigation followed a reference by the Director General of Fair Trading in July last year as to whether one or more companies is involved in a monopoly in the £500 million market; on whether there are any practices which exploit or maintain this monopoly; and on whether they may operate against the public interest.
After initial investigations and hearings the Competition Commission yesterday sent a letter to retailers and other parties concerned stating that its provisional view is that:
“retailers of domestic electrical goods who provide paid extended warranties at the point of sale of the relevant domestic electrical goods are members of a group which supply at least one quarter of extended warranties and conduct their affairs in a way which has the effect of preventing, restricting or distorting competition to provide extended warranties.”
However, the Commission said that identifying those who are acting as a complex monopoly does not amount to an adverse finding; the Commission also has to consider whether their conduct is against the public interest.
The Commission accepts that extended warranties provide a diverse range of services that are valued by a significant minority of consumers; the question is whether consumers would get more choice and better value if competition to provide them were improved.
The Commission's current concerns are that consumers should have choice and should have good information on the choices that are available; they should also have time and opportunity to consider what choice to make. The aim should be to encourage competition and empower consumers to get good value.
If the Commission reaches the view that this conduct is against the public interest, it will recommend measures to address them. The Commission is therefore consulting on a large range of possible remedies, some of which are alternatives to each other.
These remedies include
All retailers involved in the investigation now have the opportunity to put forward their views. These include such well-known names as the Carphone Warehouse Group Plc, Comet Group Plc and Dixons Group Plc.
In fact Dixons may well be breathing a sigh of relief, for the Commission also announced yesterday that Dixons probably does not have a "scale monopoly" in the market.
In January, the Commission had considered that the group might have a scale monopoly in the market, because on information available at that stage it was estimated that Dixons had slightly more than 25% of the supply of extended warranties.
Further analysis, however, suggested that Dixons’ share is slightly below 25%. Assuming that this information is confirmed, the Commission expects to conclude that there is no scale monopoly. This view does not affect the inclusion of Dixons in the complex monopoly.
Responses to the letter are invited by 6th June, and the Commission is due to report on 1st July.