Cambridge merchants have slashed prices of phonograph records up to 40 percent as the result of a vicious price war between RCA Victor and Columbia Records.

The dispute, which originated in Los Angeles, has now spread east to Boston and New York City. Columbia, which cut prices first, offers customers a second record at half price, with each purchase of a record at half price, with each purchase of a record at the regular retail price. In effect this is equivalent to a 25 percent discount. RCA struck back by cutting prices on all long-playing RCA Victor records by 30 percent.

Both Briggs and Briggs, which normally gives a 20 percent discount on most of its records, and McKenna's, which doesn't regularly offer any discount, have gone along with the price cuts ordered by RCA and Columbia.

Minute Man Radio Co., which usually advertises a 25 percent discount on record sales, disregarded the suggested price cuts and slashed prices on all RCA, Columbia and Westminster records by 40 percent.

Even so, price cutting in the Square is less severe than in New Haven. One merchant, David Dean Smith, is offering Yale students a full 50 percent discount on all brands of records.

Harvard Square merchants believe the price war will not continue and will probably end by March 1. Neither Decca, Capitol, nor London record prices have been reduced yet.

When the price war ends, it is expected that retail prices will rise. The 12-inch RCA record, which normally sells for $5.72 and has sold for $3.54 and $3.99 during the price war, will probably go up either to $5.85 or $6.25.

All stores offering discounts report that business is on the un swing. None of the merchants, interviewed, however, would give an estimate on how much business has increased.