Leading Article: Discordant sounds from the CD market

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The Independent Online
FEW PRICES arouse so much passion as those of CDs. One would like this to be because music is an essential nutrient of the spirit for which it is immoral to overcharge, but the reasons have more to do with clashes among the many interests involved. All the consumer sees is that in Britain CDs are more expensive than in America and also more than domestic cassettes, which are no cheaper to produce.

The latest champion to ride into battle is the House of Commons National Heritage Select Committee. In its report, published yesterday, it condemns the major record companies and says that retail prices should be reduced by at least pounds 2. It also criticises the copyright restrictions that hamper competitive trade in both directions across the Atlantic, making it difficult for British retailers to buy from American suppliers.

The main arguments have been well rehearsed and the blame batted to and fro between manufacturers and retailers. Some retailers say they would love to reduce prices in the hope of selling more but that their margins are insufficient. The record companies defend themselves by pointing out that the American market is larger than the British, and different. They also argue that making records is a high-risk business in which they have to use the profits from successful recordings to foster new talent - just as drug companies charge far above costs to finance research.

The question that really matters is whether a free market is operating. If it is, manufacturers and retailers have every right to sell at whatever prices they think the market will bear, and to make their own calculations about whether to seek high prices at low volume or high volume at low prices. They may also choose whether to subsidise high-risk records with profits from established favourites or to go for wider price differentials than now exist.

A stubborn suspicion has remained, however, that the market is at least partly rigged by a de facto cartel of manufacturers in collusion with the largest retailers. The Office of Fair Trading came to the conclusion a year ago that no such collusion existed and that prices had settled at the level the market was willing to bear. But the director general of the OFT subsequently opened a further inquiry after saying that he had become concerned about the situation.

The national heritage committee has little useful to add on this subject. Indeed, it weakens its case by making clear that it started out not in a spirit of neutral research but from a firm presumption that CD prices were too high. Company representatives felt they were treated as defendants in a court case rather than as witnesses at an inquiry, and the atmosphere was sometimes heated. Yet they themselves added little to the sum of public knowledge. Further progress is unlikely until either the trade has a change of heart, of which there is no sign, or the Office of Fair Trading uncovers solid evidence of market rigging.