Consumers win in the price wars

Fixed cost for electrical goods is at an end

Consumers have had to pay more than they should on a variety of electrical goods, according to the long awaited report by the Monopolies and Mergers Commission into price fixing. As a result the Government has abolished recommended retail prices (RRPs) on some products and prohibited suppliers from discriminating against retailers who sell at a discount.

The goods that will no longer be subject to set prices include televisions, video cassette recorders, hi-fi systems, camcorders, washing machines, tumble dryers, dishwashers, fridges and freezers.

United States electrical retail giants, which offer low prices from huge out-of-town stores, could move into Britain as a result of the changes, although planning permission might pose problems.

While the Government's move was welcomed by consumer groups, who predicted that prices could tumble on some lines, retailers and suppliers warned that margins were so small in the industry that prices might increase once RRPs went.

The President of the Board of Trade, Margaret Beckett, said the measures would bring down costs for consumers by encouraging price competition and widening the number of shops supplying goods. "I have accepted the unanimous findings of the MMC that a variety of widespread and entrenched practices by suppliers and dealers of domestic electrical goods operate against the public interest," she said.

"The MMC have found that retail prices are higher than they would otherwise be, price competition in these markets is muted, new retailers have difficulty getting supplies, and innovation in retailing is discouraged. As a result, consumers have to pay more than they should."

Two years ago a Consumers' Association report surveyed high-street stores and found that many top-brand electrical goods were being priced identically across the country. Several stores said on the telephone that they would lose their dealership if they offered a discount. And a survey carried out for the BBC1's Panorama programme found that identical video recorders were priced at pounds 479.99 in 17 out of 22 stores, refrigerators at pounds 249.99 in 16 out of 19 stores, and washing machines at pounds 429.99 at 10 out of 11 stores.

In 1994 the combined market share of five retail chains selling domestic electrical appliances was 42 per cent.

Colin Brown, deputy research director of the Consumers' Association whose complaints sparked the Office of Fair Trading inquiry into the issue two years ago, said: "It heralds the end of price fixing in electrical retailing and that must be good for the consumer and good for the industry. Customers will have a wider choice and innovative retailers will now have room to breathe." He also expected "big changes" in the service offered by retailers.

But manufacturers and retailers reacted angrily. Peter Hamblin, deputy managing director of Panasonic UK, said the MMC's report was "fundamentally flawed" and based on the "highly selective use of evidence". "Independent reports point to the likelihood that prices will rise as a result of the abolition of RRPs," he said. "Shoppers will doubly suffer as they value RRPs as a price guide from which to negotiate a discount."

Malcolm Willings, deputy managing director of Sony UK, added: "We think it is very questionable whether this measure will benefit the consumer ... We continue to believe that the MMC ... failed to give any serious consideration to all the evidence as to the fiercely competitive nature of the ... market."

A spokesman for Dixons said that the central recommendation had been "widely anticipated" and added: "RRPs are not a feature of the group's marketing platform."

But Clive Vaughan, retail consultant with Verdict Research, said that the changes might be less dramatic than hoped as electrical retailers operated on very thin margins. "They will probably sell some lines more cheaply ... so there will be more bargains around." he added.

Michael Kraftman, marketing director of Tempo, the UK's largest independent electrical retailer, said that they welcomed any legislation which would make the industry fairer: "Any new competitive environment can only benefit cost- effective operators."