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Press releases 2011 -

OFT launches market study into extended warranties

Washing machine dial

55/11    14 April 2011

The OFT has today launched a short market study into extended warranties for domestic electrical goods such as televisions, washing machines and computers.

The study will focus on whether competition for warranties is sufficiently effective to ensure consumers get value for money in a market worth well over £750million.

Today's announcement follows an OFT review of aftermarkets for domestic electrical goods which was launched in November 2010. During this review, some parties raised credible concerns that competition is limited by retailers' advantage in being able to sell warranties at the same time as they sell domestic electrical goods. There were also more general concerns that warranties are not good value for money.

This is consistent with an OFT evaluation in 2008 which showed that the Supply of Extended Warranties on Domestic Electrical Goods Order 2005, introduced to improve competition, was by that time only addressing around £19million per year of an estimated annual consumer detriment of £366million.

At the same time, the OFT has decided against launching a market study into repairs of domestic electrical goods. This is because it did not receive sufficient evidence to support initial concerns that manufacturers may be restricting competition for repairs by limiting independent repairers' access to technical information and spare parts. 

Claudia Berg, Director in the OFT's Consumer and Goods Group, said:

'Consumers buy millions of extended warranties on domestic electrical goods each year and we want to make sure they are getting value for money.

'We plan a short and focused market study to find out quickly what, if any, action is needed to make this market more competitive, to the benefit of consumers and the wider UK economy.'

The OFT aims to publish its market study during summer 2011. It will be contacting key parties directly during the course of the market study. Other interested parties can submit views by email to degs@oft.gov.uk or by writing to:

DEGs Team
Consumer and Goods Group
Office of Fair Trading
Fleetbank House
2-6 Salisbury Square
London EC4Y 8JX

For further information on the scope of the market study and the OFT's findings on aftermarkets see the domestic electrical goods market review page.

NOTES

  1. The OFT domestic electrical goods (DEGs) market review was launched in November 2010. See press release OFT launches Domestic Electrical goods review.
  2. OFT market studies are carried out under section 5 of the Enterprise Act 2002 (EA02) which allows the OFT to obtain information and conduct research. Effectively, they allow a market-wide consideration of both competition and consumer issues. Market studies examine why particular markets are not working well for consumers. They take an overview of regulatory and other economic drivers in the market and consumer and business behaviour. Possible outcomes of market studies include: enforcement action by the OFT, a market investigation reference to the Competition Commission (CC); recommendations for changes in laws and regulations, recommendations to regulators, self-regulatory bodies and others to consider changes to their rules, campaigns to promote consumer education and awareness or a clean bill of health.
  3. Download Market studies - guidance on the OFT approach (pdf 586kb): guidance for companies and their advisers and other interested parties on the procedures that the OFT will usually follow when conducting market.
  4. Potential competition concerns apply across extended warranties on a wide range of DEGs. Hence, the market study will include extended warranties on all DEGs, not just those the OFT focused on when it launched its work into aftermarkets. 
  5. Following an OFT market study in 2001, the CC conducted an investigation of the market for extended warranties on DEGs. It found that there was a lack of competition between extended warranty providers which resulted in high prices for consumers. To address these concerns the Supply of Extended Warranties on Domestic Electrical Goods Order 2005 was introduced to improve information to consumers and improve their rights to cancel an extended warranty. The OFT published an evaluation of this Order in 2008, which found that although there was evidence of increased competition, some stores were not complying with the legislation. It concluded that the Order may not yet have had its full effect on competition by that time. 
  6. At the same time as launching its consultation on aftermarkets, the OFT launched a review of the Restriction on Agreements and Conduct (Specified Domestic Electrical Goods) Order 1998 and associated undertakings. The OFT has a duty to review Orders and undertakings of this kind and to identify to the CC any changes of circumstances which mean they should be varied, removed or superseded. The OFT's analysis for this review is progressing and it expects to conclude the review by Summer 2011. 
  7. The OFT is unable to provide advice or resolve individual complaints for consumers. Consumers can seek advice from Consumer Direct.



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