Supermarket giants Coles and Woolworths will fight the consumer watchdog over accusations of misleading "price drop" campaigns. 

Both companies claim the legal cases against them are misconceived and deny allegations they tricked customers with fake discounts.

Lawyers for the two supermarkets appeared in the Federal Court on Wednesday after the Australian Competition and Consumer Commission (ACCC) launched separate legal proceedings in September.

The ACCC claimed the companies violated consumer law by using their "Down Down" and "Prices Dropped" promotions to mislead shoppers. 

It has alleged both supermarkets used similar ploys to increase prices of hundreds of products before dropping them.

While the products sold for less than the inflated prices, they still cost more than the regular price before the price spike, according to the watchdog.

Supermarket giants deny allegations

Both supermarkets argue suppliers had pushed for increased prices on products due to their rising costs.

Woolworths' lawyer Cameron Moore SC told the court the company had not initiated the temporary spikes in prices.

"The suggestion is that Woolworths initiated temporary price spikes and that's not correct factually," Mr Moore said.

"We say factually, the ACCC's case is misconceived."

Coles' lawyer John Sheahan KC said the case was not as simple as the ACCC's allegations and any outcome could have significant implications for the whole industry.

Both supermarkets have to file a written response to the ACCC's legal allegations by November 29 and will return to the Federal Court in December for another case management hearing.

Under scrutiny 

The dominance of the two companies and their pricing has come under significant scrutiny during the cost-of-living crisis.

Coles and Woolworths make up 67 per cent of the supermarket sector and it has taken two decades for the next largest chain Aldi to get to 9 per cent of the market share.

An ACCC report in September highlighted customer concerns on soaring prices at the check-out, a lack of competition and a loss of trust about specials or discount schemes.

The report was released two days after the watchdog launched the legal action against Coles and Woolworths. 

A survey by the Australia Institute earlier in October found most people believe supermarkets are responsible for financial pressures.

The federal government announced plans to change product unit pricing rules to combat "shrinkflation" tactics — when products get smaller in size but prices stay the same or increase.

AAP