Anyone who has visited the US or the Far East will have found themselves going misty-eyed and waxing lyrical on the subject of 'how cheap things are over there'. But you don't have to cross an ocean to see bargains.

The difference in the price of new cars in Britain and mainland Europe - they are often as much as 20% cheaper on the continent - has many people hopping mad.

The UK's Director General of Fair Trading has concluded 'the market isn't working', and has now ordered the Monopolies and Mergers Commission to investigate whether or not cartels exist in the car industry.

Whatever the cause, people are realising that we must be paying over the odds in the UK for a whole range of goods and services. But do we complain? No, that's not the British way, is it?

So that decision to investigate high prices in the UK will come as music to many people's ears. Trade and industry minister Stephen Byers says he has identified this as a key obstacle to the concept of a harmonised Europe.

If you want proof that things cost more here in the UK, there is plenty of it around. Bureau European des Unions de Consommateurs (BEUC), the European consumers' organisation, carried out a survey last year in 52 cities across Europe in which it compared the prices of 400 different products. From this it produced an index of the cheapest and most expensive countries.

The UK turned out to be the dearest of the 10 countries sampled, with a rating of 124 overall. By comparison, France scored 107, Luxembourg 102 and Germany a rating of 100.

Report after report, survey after survey, they all come back with the same result - when you compare like-for-like goods, we in the UK are paying more than just about everyone else in the developed world.

Sure enough, it's the same story with IT equipment - both hardware and software. Feel like paying through the nose? No? That's unfortunate, because the chances are you're going to.

There is a painfully simple solution to all of this, of course. If stuff is cheaper somewhere else, then go somewhere else to buy it. Plenty of people import cars from Holland and Germany, and even from the Far East, so why not do it with IT?

The practice of buying from non-standard, unauthorised outlets is often referred to as buying from the grey market.

The grey market is a bit like the black market, except in this case no one's actually breaking the law - just risking the annoyance of original manufacturers.

There are big savings to be had from going grey. For example, an IBM PC 300GL, with PII 400MHz chip, 32Mb memory and a 4.2Gb hard drive running Windows 98 would set you back about #814 in the UK, but bought on the European mainland, the same PC will cost you #689. That's a 15% saving.

How about a Cisco 1601CH router? It'll cost you about #779 here and only #649 on the other side of the channel.

Mike Almond is business development manager at ProSource, a company which specialises in finding this sort of deal for its customers. Using a combination of overseas contacts and the Net, ProSource keep tracks of international prices on a daily basis. When asked by a customer for a particular product, it can go out and find the best price.

'We're not saying we're better than established channels or that our approach is the right one for organisations to adopt, but our results speak for themselves. More importantly, we offer an alternative option to our customers. That's what a free market should deliver,' Almond says.

'It's not difficult to find this stuff. Some manufacturers will discount heavily in particular countries to make in-roads into that market. We can use those markets to buy products back cheaper.'

There is, of course, a catch - buy your kit from another country and the manufacturer's warranty is invalid when you get home.

No warranty means no technical support, no helpline advice and certainly no upgrades. Some manufacturers are so inflamed at the thought of people saving money like this that they will not just refuse support, they will also claim the law is being broken. This is despite the fact that Europe is now a single market.

Phil Humphries is head of IT services at Surrey Police and it is no surprise that he's extremely cautious about ending up on the wrong side of the law, whether statutory or a manufacturer's warranty rule.

As part of his force's year 2000 project, a lot of equipment has been replaced, at the same time as migrating to Windows NT. He may have seen lots of expensive equipment being bought, but Humphries is not tempted by the lure of the grey market.

'I am aware that some of the things we use could be bought cheaper overseas by using the grey market, but I don't think the differences are as great as they used to be,' he says. 'Apart from which, the hassle factor would be enough to put me off.'

This is an important factor for many people. 'All too often you don't know exactly what you're buying and who you are buying it from. In the event of a problem, can you be sure you'll be able to get hold of them?' Humphries said.

But there's more to it than that. Saving money on initial capital outlay may have its attractions, but Humphries feels this is a short-term gain had at the expense of longer term success.

'We are moving away from a situation where we are buying boxes. Now we want to deal with a partner which can offer the right support we need from start to finish.'

Most of the bargain-basement IT offers that crop up in the small ads will be for software. Adverts purporting to have US versions of Microsoft Office at less than half price are fairly commonplace. David Gregory, Microsoft UK's customer legal licensing manager, warns there is more to these offers than meets the eye.

He explains: 'Our biggest problem with people using unauthorised sources is that the overwhelming majority of this software is counterfeit. It will be passed off as being from the US, but in about 90% of cases it is pirated. The individual serial number on the product tells us where that product was bought or if it is a copy.'

Finding anyone with IT purchasing responsibility who will admit to using the grey market is difficult, although one IT manager confided anonymously: 'Most of our procurement has to go through a centralised process. However, some stand-alone projects are bought on an ad-hoc basis and that's when buying on the cheap becomes a viable option.'

But why is any of this stuff priced so much higher in the UK in the first place? Almost all the major manufacturers operate different pricing policies in different countries, but few can explain why the UK gets clobbered quite so comprehensively.

As far as Microsoft is concerned, Gregory says: 'The majority of software originates from the US and there are certain unavoidable costs incurred when taking that software into other territories - local support services, language support, translating documentation and so on. Not to mention currency fluctuations.'

But with the world's foremost software vendor moving toward shipping single 'every-language' versions of its products, this position is set to become obsolete.

On the hardware front, the world's number one in PCs, Compaq, also varies prices between the countries that it sells to.

David Petts, Compaq UK commercial unit business manager, explains: 'Local pricing exists because different markets have different patterns of economic behaviour. In Europe, Compaq prices are set by the company's European HQ in Munich, and individual countries are then able to fix their own prices within a given range.

'So, if one were to charge at the top end of the range and another charged at the lower end, you could, in theory, see material price differences,' he says.

Why the UK is hit hardest by these price differentials is obviously a difficult subject for manufacturers to discuss candidly.

One source within a major hardware company begrudgingly admits: 'Lots of things are cheaper in the US and Japan. It's the way of the world - people just need to face up to it.'

So, there you have it - put up and shut up. If you don't put up, and instead succumb to the grey market, your warranties won't work.

However, there are ways to get around the warranty issue. In the case of Compaq, any warranty in operation in the UK will also cover the rest of Europe and vice-versa. You can buy Compaq kit in Holland, for example, and not have to worry about your warranty.

ProSource's Almond explains that it is important to keep geography in mind when venturing into the grey market.

'Manufacturers will claim warranties are not valid, but under EC law there is nothing to stop you buying things from any other EC country.

If we have a customer that is very sensitive about maintaining the warranties, we'll be careful to only buy from within the right region,' he says.

In the case of IBM, things are even more straightforward: good old Big Blue offers global support on all its products, so it doesn't matter if you bought your Thinkpad in Durban but you live in Doncaster.

A long-standing champion of the grey market is Cirencester-based RBR Networks, Cisco's largest European distribution partner. Before getting its Cisco accreditation in October 1997, RBR was something of a thorn in Cisco's side. It was doing so much business in grey-market Cisco product that in the end the company had to be brought into the fold.

RBR marketing director, Jos White, takes a fairly pragmatic view of the subject. He does, however, prefer the term 'second sourcing' to grey market - he believes it doesn't sound so grubby. 'Using second sourcing, we could make a healthy margin and still sell cheaper than most of the competition,' says White.

'It has to be up to the manufacturer to make it worth everyone's while to use the authorised channels,' he adds.

'Manufacturers cannot simply try and ban this sort of thing and it is definitely not on for them to throw their weight around, threatening everyone by saying that their licences are invalid and they may be breaking the law.'

It comes as no surprise that a manufacturer such as Compaq is against the use of the grey market. It has nothing to gain from people bypassing the authorised Compaq reseller, and it messes up the company's marketing campaigns.

'I think users should always opt for the authorised channels,' says Petts.

'They are closer to the manufacturers and are better resourced, whereas the unauthorised channels miss out on things like special promotions.'

But in spite of this, he is still a carrot rather than stick man. 'I don't see this as a question of legality - it's more about the quality of service and support you can offer to your customers. And customers also have a part to play in this - they should be asking themselves if they are fostering the right sort of relationship with their supplier.'

Ultimately, there are two ways to buy IT goods: the authorised route and the unauthorised route. The former will cost you more but gives you lots of feel-good factor and after-sales support.

The latter will probably save you a considerable amount of money, but could leave you feeling mightily exposed in the event of a system failure.

Like most things in life, high rewards tend to go hand-in-hand with high risks. You pays your money and takes your choice.

WHY UK PLC IS SO PRICEY

Computing spoke to Roger Alford, senior research associate of the Financial Markets Group at the London School of Economics, about why the UK is so expensive.

Several distinct factors can be identified.

- The UK is small and crowded, and planning applications are heavily regulated

- The UK's smallness makes it easier for one retailer to control more of the market in a particular area. Global commodities like fuel have very large suppliers which can keep prices artificially high in small or remote areas. The market for fuel affects the price of anything that needs to be distributed, so the knock-on effect can be significant. The tax on such goods is also a very significant inflating factor on high street prices given that the price of fuel for electricity, distribution for example, and other commodities are reflected in an item's final retail price

- The UK is an island so it's more expensive to import goods. As our economy requires increasing international trade, this overhead affects an increasing proportion of goods and services.

When management consultant McKinsey looked at the UK's low competitiveness and productivity for the Treasury, it highlighted the high cost of land.

As Alford puts it: 'The fact that our planning laws are tighter than the US or France has two main knock-on effects: higher land prices because you can't go building out-of-town hypermarkets on green field sites, and there's less competition, because the start-up costs are higher.

'Once you knock off regional differentials like tax, these factors become far more significant.

'It's possible retailers expect too high a return on sales. In the case of computers, for example, some US companies have been complaining about Dixons' high street prices, but Dixons claims that it suffers high overheads.

'Labour costs may be no cheaper here in the UK than the US, but premises costs are higher. The general view, however, is that once these things are taken into account, the difference between prices here and abroad is not that great.