Cost of a CD deemed fair: Monopoly inquiry clears record firms of overcharging. Russell Hotten looks at the arguments that proved decisive

RECORD companies and retailers have been cleared of over-charging for compact discs after an 11-month inquiry by the Monopolies and Mergers Commission.

Although the dominance of firms like EMI, Polygram and W H Smith did constitute a monopoly, they did not operate against the public interest nor make excessive profits.

Yesterday's report was condemned as a whitewash by MPs, and the Consumers' Association called for the MMC's activities to be reviewed. 'The MMC has proved itself once again to be light years from the real world and the concerns of the public,' Stephen Locke, the CA's director of policy, said. 'CD-buying consumers will react with disappointment and disbelief.'

The report found that domestic prices were comparable with those in most other major countries except the United States. Full-price CDs in the US were about 25 per cent cheaper, but the differential was in line with similar products.

The report said: 'This reflects economies of scale in the larger US market, the generally lower retailing costs in the US and, of course, the effect of exchange rates. Moreover, differentials can appear larger than they actually are because record prices are displayed without sales tax in the US, while shelf prices in the UK are inclusive of VAT.'

The investigation was launched last year when the Commons national heritage committee, chaired by Gerald Kaufman, warned that manufacturers kept prices artificially high because they had a stranglehold on distribution.

He complained that there was no reason why CDs should cost more than LPs or cassettes. But the report said: 'CDs are priced higher than LPs or cassettes because of customers' clear perception that they give better value in terms of sound quality, durability and user friendliness.'

Graeme Odgers, MMC chairman, said the cost of producing a CD, at pounds 1.32, was double that for a cassette. 'Yet companies do not charge double the price for their CDs. Prices of CDs have fallen in real terms over recent years. Since 1987, prices have dropped by about 13 per cent. The differential between CDs and cassette prices has narrowed considerably.'

Mr Kaufman said the 400- page report, which cost pounds 1m, was a waste of time and money. 'Our committee was told by manufacturers that the cost of producing CDs and cassettes was about the same.'

The report said the manufacturers Thorn EMI, Polygram, Sony, Warner and BMG accounted for about 75 per cent of the market. There was also a monopoly at the retail level because W H Smith supplied more than 25 per cent of CDs through either its own shops or its Our Price subsidiary. But the MMC said they all competed vigorously among themselves and with the independent sector made up of 600 companies.

The Consumers' Association's Stephen Locke said: 'The claim that 'a monopoly exists but it is not against the public interest' is an anti- competitive mantra which we have heard the MMC recite all too often.'

The report said copyright protection, which stops imports coming into the UK from non-EC countries, did not result in higher UK prices. 'Some countries that have no such protection actually have higher record prices than in the UK.'

Thorn EMI welcomed the report and the company's chairman, Sir Colin Southgate said he hoped it would finally lay to rest 'unfair and unsubstantiated allegations'.