Surging inflation spurred changes to guardrails intended to avoid “gaming” of supermarket item prices, a Woolworths boss has told the Federal Court.

The competition watchdog has taken Woolworths, and rival Coles, to caught, accusing them of temporarily hiking prices before reducing them to disguise increases through their “Prices Down” and “Down Down” marketing campaigns.

On Wednesday, Woolworths chief commercial officer Paul Harker said time limits that aimed to avoid gaming of prices were established during a low-inflation period but had to be cut back as the Covid pandemic drove widespread inflation.

“The guidance that we have is not very particular, other than saying you needed to hold a price for a reasonable period of time and sell reasonable quantities,” he told the hearing in Sydney.

“Our determination of what is reasonable is in the price trust policy that was rolled out to the team … 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.

Harker said the supermarket giant had initially set established price periods and resting periods – which prevented products from returning to the campaign for at least six months after they were removed – to avoid gaming of prices by suppliers.

“It was to make sure the category manager and the supplier, in putting the product onto the program, they were committed to what it was actually trying to achieve and it would be there for as reasonably as long as possible,” he 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.”

Harker said an initial minimum establishment price period of eight to 12 weeks became “onerous” on Woolworths’ teams. It was later changed to three to six weeks.

Coles offered its defence in the joint case brought by the Australian Competition and Consumer Commission in February in a 10-session hearing. The court’s final judgment will be withheld until each supermarket giant’s case is heard.

Harker, who has been with Woolworths since 1993, noted Coles was using a similar price promotion when Woolworths launched “Prices Down”.

“Certainly, our competitor was doing something similar,” he said.

“We had already attempted a few years before that with a shelf prices reduced campaign across across the store; it didn’t resonate.”

On Monday, ACCC lawyers 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 argues the supermarkets offered certain products at a regular price for at least 180 days, hiked their price by at least 15 per cent for a “relatively short period of time”, before reducing them to above the original shelf price alongside “Prices Dropped” or “Down Down” tags.

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

“If the price establishment period was three months, we wouldn’t be here,” Justice Michael O’Bryan told the court on Monday.

“If it was always one week, the case might not be fought.

“We’re somewhere in the middle and that’s what makes this case rather difficult.”

The ACCC alleges the conduct involved 266 products at Woolies and 245 goods at Coles at different times between late 2021 and mid-2023, affecting tens of millions of sales and deriving significant revenue for the grocery giants.

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

-AAP