Shoppers have been urged not to place “simple trust” in the major supermarkets because the benefits of competition depend on making price comparisons.

The Australian Competition and Consumer Commission is taking Coles and Woolworths to court, accusing the supermarket behemoths of breaking consumer law by duping customers with misleading discount pricing claims on hundreds of products.

Watchdog chair Gina Cass-Gottlieb dispelled rumours the grocery giants were in cahoots on the allegedly fake markdown schemes but noted they monitored each other’s prices and suggested customers did the same.

“They price check each other and they price check other competitors to set their prices … but there is no suggestion that they colluded,” she told ABC radio on Tuesday.

“Consumers always should work on the basis of information and checking rather than … simple trust.

“In order to get the benefit of competition, we need to check and compare to the local supermarkets.”

The ACCC, for example, launched its court case only after scrutinising the work of social media sleuths.

TikTok, Reddit and X all had hundreds of reports about misleading discounts from consumers who were monitoring prices.

“People sensed that these were not genuine discounts,” Cass-Gottlieb said.

“Consumers who are engaged give us the ability to best protect consumers and competition.”

In one example highlighted by the ACCC, Coles increased the price of Strepsils Throat Lozenges from $5.50 to $7 in 2022 after the price had remained the same for 649 days.

The price stayed the same for 28 days before the product went onto Coles’ Down Down program for $6, with the claim its “was” price was $7, rather than the long-standing $5.50.

Consumer group Choice said more public scrutiny was needed of the supermarkets’ historical pricing with the launch of the legal action.

“We’re calling for greater transparency of historical supermarket pricing data,” Choice campaign director Rosie Thomas said.

“Easier access to data on supermarket price changes over time would have made it much harder for the supermarkets to get away with this kind of behaviour for so long.”

She said Coles’ and Woolworths’ pricing practices “urgently need[ed] to be addressed – particularly during a cost-of-living crisis when people are doing it tough”.

In its efforts to cap ballooning costs across a variety of sectors, the consumer watchdog is prioritising merger reform, rather than divestiture powers.

“It’s about maintaining the competition that we have now in key sectors, and allowing it to grow,” Cass-Gottlieb said.

Prime Minister Anthony Albanese said the allegations, if proven true, would be “completely unacceptable”. On Tuesday, he was again critical of the big retailers, calling the ACCC allegations “red-hot” and “an outrage”.

“Australians who go to the supermarket have been concerned for some time, you would have heard anecdotally, people telling stories about this,” Albanese told ABC radio in Perth.

He said Coles and Woolworths might face “more than a slap on the wrist”.

“I think the implications for their brand has been damaged by this, because it confirms what many shoppers think and what they’ve been saying to me, which is why we have determined to take strong action,” he said:

“When shoppers go to the supermarket, they expect to get goods at a fair price. I understand supermarkets have got to make a profit. They’ve got to make a profit so they can employ people, but what they shouldn’t do is abuse that power.”

The ACCC, which launched its legal action in the Federal Court, said it would seek a significant penalty for the alleged breaches, which relate to the Woolworths’ “Prices Dropped” and Coles’ “Down Down” promotions across 15 months.

The watchdog will also seek “a substantial additional donation” to foodbanks and other charities that help needy families, as part f the penalty for the major retailers.

Coles said it would defend the court proceedings, while Woolworths said its ‘Our Prices Dropped’ program was introduced to give shoppers “great everyday value” on products.

The supermarket giants were hit hard after the ACCC announcement. Shares in both Woolworths and Coles fell more than 3 per cent in Monday’s trade, for a combined loss of $2.29 billion.

-with AAP