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PN 40/02 2 July 2002
The OFT today referred the market for the supply of extended warranties on domestic electrical goods, worth over £500 million a year, to the Competition Commission.
This follows a study by the OFT's markets and policy initiatives division which found that competition in the market did not appear to be working effectively and that consumers were not adequately informed or protected.
Extended warranties typically can add around 50 per cent to the cost of an electrical good. Most extended warranties are sold by the large multiple electrical retailers.
The study, launched in October 2001, is the first OFT market study to be published. It has explicitly looked at both consumer protection and competition issues together. It found:
John Vickers, Director General of Fair Trading, said:
'Our study concludes that there are serious questions about how effectively competition in this market is working for consumers. It is now for the Competition Commission to investigate these questions in depth and report. We hope that making this reference may lead to improvements in competition and consumer choice.'
The Competition Commission has 12 months to report to the Secretary of State on:
The OFT will be launching a campaign to promote better consumer awareness of their statutory rights when purchasing goods and services, including extended warranties. It will also be continuing to investigate complaints received about unfair contract terms in extended warranties.
Before purchasing an extended warranty with an electrical appliance consumers are advised to:
Many extended warranties are bought as an afterthought. It is best to think before you buy.
2. Extended warranties are contracts which cover consumers for the cost of any repairs or replacements within a specified period, typically four years, beyond the one year normally covered by manufacturer's, retailer's or importer's guarantee.
3. Under section 2 of the Fair Trading Act 1973, the Director General of Fair Trading has a general duty to keep under review commercial activities in the UK with a view to becoming aware of monopoly situations or uncompetitive practices.
4. One type of 'monopoly situation' exists where at least one quarter of all the goods or services of a particular description supplied in the UK are supplied by, or to, any two or more companies which so conduct their respective affairs (whether by agreement or not) as in any way to prevent, distort or restrict competition.
5. The markets and policy initiatives division of the OFT conducts around five full studies a year. The possible outcomes of these include:
6. The markets and policy initiatives division complements the competition and consumer regulation enforcement divisions. It takes a broader perspective in reviewing markets that could work better for consumers.
The division has three branches:
MPI1 – provides the central resource of specialist economic, statistical, and financial analysis advisors
MPI2 - is responsible for the OFT's enhanced role in investigating markets that might not be working well for consumers but where competition or consumer regulation enforcement action does not appear to be the immediate answer
MPI3 - co-ordinates with Government, other organisations (both national and international) involved in consumer protection and competition matters, manages a public information line on matters within the OFT's responsibilities, and handles preparations for OFT's role as regulator of payment systems.
7. Since its establishment in October 2001 the markets and policy initiatives division has started five studies in the following markets:
8. In this press release the functions of the Director General of Fair Trading (DGFT) under the Act are for simplicity described as the functions of 'the OFT'. The Enterprise Bill proposes to replace the office of the DGFT with the OFT, to which would be transferred the DGFT's functions.
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