The OFT has persuaded the Competition Commission to investigate how electrical goods retailers sell extended warranties to consumers. Whilst there may be strong evidence that the sales pitch is excessive on warranties, it may be difficult to show that consumers do not make informed decision and that warranties are not the right choice for risk averse consumers. Like most products, the poor who can least afford the warranties appear to pay more for the assurance than richer consumers who, replacing electricals more often are less concerned. However this type of situation is not necessarily to do with the retailers selling techniques.
Much is being made of the 'complex monopoly' that exists in the retail market. However this is surely a case of a contestable market, where despite a limited number of competitors the consumer does benefit from near perfect competiton conditions. The fact that warranties do make such a large share of the retailers profits (between 40% and 80% has been quoted) may show how competitive the consumer electronics retail market is.
With contestable markets, it is the barriers to entry must be fairly low. With warranties it is arguable that they are lower than for retailing (as you don't need distribution and warehousing). It should be fairly easy for an entrant to offer seperate warranty policies not linked to the retail sale of the product (as manufacturers often do). The question that the competition commission needs to answer is to why there is not money to be made in that way. Is it really a case of monopoly power. Some supermarkets, in particular Asda, already offer free warranties on electricals. Again however this may be more to do with oligopolistic behaviour in the supermarket rather than the electronic retailing sector.