Australia’s major supermarkets provide broadly similar products, prices and loyalty programs in an oligopolistic market that may limit incentives to compete vigorously, the competition regulator has found in its interim report on the sector.

The Australian Competition and Consumer Commission also said grocery suppliers had raised “concerning” issues – such as being required to pay rebates for promotions to supermarkets – prompting the regulator to use its compulsory information gathering powers to examine the reported behaviour.

Industry allegations of “land banking” – a practice where companies buy land as an investment, hold it for future use and make no plans for its development – also appear in the report, with Woolworths found to own 110 vacant sites nationwide.

In its report on the supermarket sector, released midway into a year-long inquiry, the ACCC made no specific findings. The final report and its recommendations are due in February.

The public release of the report comes in the same week the ACCC started legal proceedings against Coles and Woolworths over allegations they misled shoppers by offering “illusory” discounts on hundreds of common supermarket products.

Coles has said it intends to defend the proceedings, while Woolworths is reviewing the claims.

Australia’s two major supermarkets, which control two-thirds of the market, have faced intense scrutiny over their pricing practices, drawing criticism from all political parties before an election focused on cost-of-living pressures.

The ACCC said in its report that “oligopolistic market structures can limit incentives to compete vigorously on price”.

“We see Woolworths and Coles providing a broadly similar experience to customers through largely undifferentiated product ranges, pricing at similar levels and similar non-price offerings including loyalty programs,” said Mick Keogh, the deputy chair of the ACCC.

An oligopoly refers to a small group of companies that exert substantial control over a market. The regulator noted it has taken Aldi 20 years to reach a 9% market share, demonstrating the level of difficulty for smaller chains to expand.

Aldi has just 13 undeveloped sites, compared to 110 at Woolworths and 42 for Coles, the report found. This has raised allegations of “land banking”, which the major chains deny and the regulator is yet to make a finding.

The report said the price of a typical basket of groceries had increased by more than 20% in the past five years, while noting the price increase was in line with inflation in other goods and services.

“We will examine whether supermarkets are exercising market power to increase retail prices more than is necessary to accommodate increases in the wholesale prices supermarkets pay,” Keogh said.

“We are also examining whether supermarkets are engaging in other business practices that may cause detriment to consumers or suppliers.”

The report found that margins at Coles and Woolworths appeared profitable relative to international peers, however the paper acknowledged there were competing metrics, an issue that played out in a fiery manner during a parliamentary inquiry.

The ACCC would consider profit margins further ahead of delivering its final report.

Coles and Woolworths told the regulator their profits were “not unreasonably high” and said grocery retailing was a high turnover, low margin business.

Anthony Albanese said the government would study the report closely.

“My government is taking a range of actions to make sure Australians are paying a fair price at the checkout and Australian suppliers are getting a fair price for their goods,” Albanese said.

“Customers don’t deserve to be treated as fools by the supermarkets. They deserve better than that.”

The assistant minister for competition, Andrew Leigh, said greater competition was critical for “putting downward pressure on prices and delivering more choice for Australians dealing with cost-of-living pressures”.

Rising food prices have been a standout contributor to inflation over an extended period, along with other important household costs such as insurance.

Australia’s big supermarkets have recently suffered a major hit to their reputation as shoppers grapple with a relentless increase in prices, while supermarkets expand profit margins.

This is borne out in consumer feedback to the ACCC, with respondents telling the regulator they find it difficult to compare grocery prices.

“Many consumers have told us that they are losing trust in the sale price claims by supermarkets,” Keogh said.

“These difficulties reportedly arise from some of the pricing practices of some supermarkets, such as frequent specials, short-term lowered prices, bulk-buy promotions, member-only prices and bundled prices.”

Meanwhile, grocery suppliers told the ACCC they sometimes have little choice but to accept prices below the cost of production, an issue some farmers claim is sending the sector broke.