I can buy a phone from, say, the Carphone Warehouse, and take it back for no reason before 14 days for a full refund. So... what happens to them? Surely they can't resell them as new.

well when i used to work at good guys, we had an open box table and sold everything at a discount, i know alot of cutomers would return something then come back the next day to buy it at the open box price and save $20, ya its cheap, but we are in a crummy econmy so what the heck.

Is the policy different if the phone is not purchased as part of a contract?

I returned both a Samsung A300 under T-Mobile (awful, awful phone) and a SE P800 under Orange. Both were taken back instantly by doth dealers without a single question, but it was the mobile service operator that seemed to hold the return policy, not the dealer, so I'd guess that the store sends the return phones back to the service providers for refunds and they in turn probably return them to manufacturers for refurb.

If the phone was full price then I'd assume that the dealer just puts it in the bargain bin, as Justin says.

My friend used to work in an Orange shop and they just sent them all back to Orange themselves. Depending on the state of the hardware they were either refurbished or were used as spare parts for warranty/insurance repairs. No idea if they still do this though as she stopped working there a few years back.

- Trevor