Compaq's decision to distribute its Presario range exclusively through Dixons has re-ignited the debate on the state of competition in the UK PC market.
The deal will prevent all other resellers and retailers from selling the Presario range in the UK. Jude Meadows, director of Compaq's consumer business computing division, admitted the move was part of Compaq's distribution streamlining.
"It combines two very strong brands," she said. "Using Dixons, we can offer the widest possible distribution network."
Cause for complaint
But some industry watchers are concerned that the strength of the two brands will be a handicap to other UK retailers. Compaq's decision to go through one retailer will not be mirrored in Europe.
The move led to Tempo calling in its lawyers to examine the deal. The John Lewis Partnership was also not pleased and complained to the Office of Fair Trading (OFT), which referred the retailer to its recent judgement on the UK PC market. After a 10-month investigation, the OFT considered the UK market was not under the control of any single manufacturer or retailer.
John Bridgeman, director general of the OFT, said: "There have been concerns that anti-competitive practices could be responsible for international differences in the price of PCs. An examination of the market has revealed that these concerns are unfounded.
"Claims that the UK home PC market is segmented between the high street and elsewhere have not been supported. There is keen price competition across different types of outlet including retail parks and mail order."
Bridgeman added: "Lower prices are to be found by buying directly from manufacturers either through retail outlets or mail order."
But Phil Evans, senior policy researcher at the Consumers' Association, argued, "Claims that the UK home PC market is not segmented undermines the OFT's case." He added the report stated there were no price differences between distribution channels, yet shoppers were encouraged to buy directly from manufacturers.
Challenge to OFT judgement
The OFT's judgement appears to be easily challenged. David Atherton, managing director of Dabs Direct, which will stop selling Presarios as part of the Compaq-Dixons deal, said: "The market is competitive, but the mail-order channel is always going to be cheaper than retail. Dixons may dominate the high street, but its prices are generally higher than mine - which suits me."
Pricing differs between the large multiples or mail-order operations and independents, but these smaller retailers are still attempting to differentiate themselves through targeted local services.
Clive Bishop, general secretary of the National Association of Specialist Computer Retailers, said: "Dixons doesn't have a hold, although it does have a pretty big slice of the market. The mail order sectors may be cheaper, but they cannot offer the local services that the smaller retailers and resellers can: that is our competitive advantage."
It was not surprising when John Clare, chief executive of Dixons, responded to the ruling: "We welcome the OFT's announcement. This will provide reassurance to consumers in the run-up to Christmas. With Internet-ready PCs now available at £399, consumers can be assured they are getting excellent value."
However, doubts about the UK market remain. Andy Brown, analyst at IDC, said: "The retail markup of PCs is still very high. For low-spec PCs, perhaps it is competitive, but not when compared to the other large markets of France and Germany, which offer a cheaper and wider range of PCs."
The UK's competition law and rules on anti-competitive practices will be toughened up next year when the legislation is revised on 1 March. Whether this will have implications for the channel remains to be seen.
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