Australia’s largest supermarket, Woolworths, has reportedly shortened the interval meant to deter price manipulation from six months to a mere three weeks, as revealed in the Federal Court.

The Australian Competition and Consumer Commission (ACCC) has initiated legal proceedings against both Woolworths and Coles, accusing the retail giants of offering misleading discounts.

The watchdog contends that these supermarkets elevated prices temporarily, only to lower them to a level still above the initial cost, thereby falsely presenting these reductions as genuine discounts.

Originally, Woolworths enforced a policy that required products removed from its “Prices Down” campaign to stay out of the promotion for six months, a strategy aimed at preventing price manipulation.

However, the court was informed that this exclusion period has now been reduced to a span of three to six weeks.

While Woolworths’ Chief Commercial Officer, Paul Harker, played a role in the decision to lessen these restrictions, he denied that this change led to any price distortion.

“Clearly, we don’t want a scenario that someone, knowing that they were going to drop the price in the future, invent some ridiculous price that they’re going to make a comparison from,” Harker told the court in Sydney on Wednesday.

“I want that price to be real, and I want it to be genuine, and I want it to be the one that would hold up in the absence of a deal.”

The guardrails, which helped discourage gaming of prices by suppliers, were adjusted as costs surged due to impacts from the COVID-19 pandemic, Harker said.

“These rules were in a low inflation environment, and were designed to make a long term commitment to the program by making it difficult to take the product off the program,” he said.

“As inflation continued to grow and grow and grow, we revised these policies.”

Gaming refers to using market mechanisms, pricing or supply levels to artificially inflate prices or gain an unfair advantage over competitors.

Retailers are required by the regulator not to mislead customers in their pricing and must hold prices for a reasonable period of time and sell reasonable quantities at said price.

The case will likely hinge on the duration of the temporary price hike and what is considered a “reasonable” period.

ACCC lawyers on Monday accused Woolworths of employing “subtle magic” in its pricing campaign to disguise price hikes with outsized, short-term increases before reducing them to above the original shelf price.

The commission alleges the conduct involved 266 products at Woolworths and 245 goods at Coles at different times between late 2021 and mid-2023, impacting tens of millions of sales and delivering significant revenue for the grocery giants.

The basket was whittled down to 12 agreed items to be scrutinised in court, including a Tim Tams Family pack, Carman’s classic fruit and nut muesli bars and Sakata rice crackers.

Coles and Woolworths account for about two-thirds of the national grocery market, followed by Aldi with its 10 per cent market share.

The case had already impacted the way supermarkets worked, according to consumer finance expert at price comparison app Zyft, Joel Gibson.

“They’re being much more cautious now with their discounting practices, even probably for the last couple of years after they first got a got a letter from the ACCC about these matters,” Mr Gibson told AAP.

While so-called “yo-yo” discounting was likely here to stay, customer trust was gradually being eroded.

“A lot of people have already lost faith with those discount stickers in the supermarkets, in Black Friday sales,” Mr Gibson said.

“So what we need to do is just to shop on the basis of price.”

The case continues on Thursday.

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