Toy firm Hasbro is being investigated over allegations it worked with retailers Littlewoods and Argos to fix prices.

The Office of Fair Trading (OFT) has written to the firms to attempt to establish if they are in breach of competition law.

"The parties now have the opportunity to make oral and written representations in response to the OFT's proposed decision," the OFT said in a statement.

"These will be taken fully into account before any final decisions are made.

Fine threat

"A final decision will be made in three to four months."

If the companies are found to be in breach of the Competition Act, they could be fined up to 10% of turnover for up to three years.

Hasbro, which makes games such as Monopoly, Scrabble, Action Man and Harry Potter merchandise, has 18% of the 1.7bn ($2.5bn) UK toy market.

The competition watchdog has been investigating the company since May 2001 amid claims that the British arm of the American toy firm has tried to fix the price at which products are sold on the high street.

Allegations taken seriously

Catalogue retailers Argos, owned by GUS, and Littlewoods are suspected to have colluded in that price fixing, along with other distributors, the OFT said.

Hasbro UK, the British subsidiary of a US-owned company, said it was taking allegations of price fixing very seriously, but added that a final decision on whether it is guilty is some months away.

A spokesman for Argos said: "We will be vigorously defending our position.

"Our lawyers will now be looking at the evidence which the OFT has gathered and we will respond to the allegations in due course."

Littlewoods said had held an internal investigation and found no evidence to support the claims.

A spokesman for the retailer said: "Littlewoods does not believe it has infringed UK Competition Law.

"We have cooperated fully with an OFT investigation providing access to documentation requested and a fully supported programme of employee interviews."