Electrical goods to tumble in price war

A high street revolution could be on the way with a price war in electrical goods and the prospect of a foreign invasion of new discount electrical shops.

The dramatic changes are expected following demands by the Monopolies and Mergers Commission that resale price maintenance on a wide range of electrical items should be banned.

The move could result in an all-out price war on products such as televisions, video recorders, hi-fis and washing machines as retailers scramble for market share. Larger retailers said smaller, independent operators could be forced out of business.

The MMC's move was welcomed by the Consumers' Association whose complaints about "massive collusion" between manufacturers and electrical retailers" sparked the Office of Fair Trading inquiry into the issue two years ago.

A spokesman said: "Our own research has revealed considerable price-fixing in the industry which stifles innovation and keeps prices high. We look forward to consumers finally getting a better deal from changes which, in the long run, will also be in the long-term interests of the industry."

However, retailers and manufacturers criticised the move saying prices were kept low by competition. "We all watch each other like hawks," said one large retail group. "If one of our competitors brings their prices down, we match them."

Manufacturers criticised the MMC report saying it lacked balance. Sony accused the competition authority of having "certain pre-conceived ideas."

Details of the MMC's draft report were leaked to the Economist and appear in the issue published yesterday. It says that the MMC has concluded that appliance manufacturers have used recommended retail prices to fix the prices at which products such a television and dishwashers are sold. It says price discipline is enforced "ruthlessly" by the main manufacturers. They discriminate against retailers who insist on cutting prices by restricting supply, the report says. The MMC declined to comment on the leak saying the official report would not be published for six to eight weeks.

Retail consultant Verdict Research said US electrical retail giants such as Incredible Universe, Circuit City and Best Buy could move into the UK as a result of the changes. They offer low prices from huge out-of- town stores, though planning permission might pose problems in Britain.

Verdict's Clive Vaughan said it was more likely that existing UK retailers might be the most aggressive on price. He pointed to Argos, which is already testing a cut price format, as the prime candidate. Comet might also return to its discounting roots, he said. Another possibility is that the major supermarket groups will expand their presence in the market.

Nearly 90 per cent of sales of the best-selling washing machine, the Hotpoint WM22, were within 5 per cent of the price recommended by Hotpoint. Prices of other appliances including Zanussi tumble dryers and Bosch dishwashers followed a similar pattern.

According to the report, phrases such as "toeing the line" and "not rocking the boat" recurred in retailers' comments on conditions imposed by the major manufacturers.

How price-fixing agreements have collapsed

If the Monopolies and Mergers report on recommended retail prices on electrical appliances is upheld by the government, it will be the latest in a series of moves by the competition authorities to dismantle price fixing agreements.

The Net Book Agreement, which allowed publishers to fix the price of their books, collapsed last year after a long campaign by supermarket groups. Also last year the Office of Trading ended resale price maintenance on non-prescription medicines after a high-profile Asda battle. Books and medicines were the only two exceptions to legislation passed in the 1970 which made all other kinds of resale price maintenance illegal.

While the changes to the non-prescription drugs ruling still awaits a restrictive practices court judgment, the book market remains relatively unchanged following the NBA's demise.

Retailers are cutting the price of a narrow range of best-selling paperbacks. But publishers have increased book prices across the board to make up for the lost margins. Fears that a market free-for-all would lead to fewer books being published and to the closure of smaller bookshops have also proved unfounded. There were a record number of books published in Britain last year.

Before 1970 the most serious piece of legislation in this area was passed in 1964. In what was seen as a controversial measure the government passed the Resale Price Maintenance Act. It made the fixing of any minimum price illegal but allowed maximum or recommended prices.