Big retailers fear they may have to hike prices and stop opening new stores if new rules are introduced to keep their market powers in check.

Woolworths, Coles, and a lobby group representing major retailers say the introduction of a so called “effects test” to assess whether big businesses are abusing their market power could damage innovation and competition.

The call for the test was among a raft of recommendations in the national competition policy review, released on Tuesday.

If it goes ahead, major retailers would be banned from using their power in ways that are designed to or are likely to substantially lessen competition.

The review said existing rules, which state powerful corporations should not take advantage of their position, were inadequate and not up to international standards.

But Woolworths and the Australian National Retailers Association (ANRA) argue the effects test would create uncertainty and stop big businesses doing things like opening a new store in a small town.

“So whether a business is looking at efficiencies to its supply chain, lower prices or opening a new store, it’ll have to consider what impact that will have on reducing competition and that would be very difficult to determine,” ANRA CEO, Anna McPhee, told AAP on Wednesday.

Woolworths said the idea of an effects test had already been rejected in 11 separate reviews since the 1980s.

“At a time of rising unemployment and when the economy is facing considerable headwinds an effects test would only add uncertainty for business, stifle investment and innovation and likely drive up prices for consumers,” the supermarket giant said in a statement.

Cole’s owner Wesfarmers warned there was a significant risk that the uncertainty arising from the proposed changes “may actually stifle rather than promote competitive conduct and leave consumers worse off”.

Competition and regulatory lawyer at Minter Ellison, Geoff Carter, said he understood the industry’s fears that businesses could be caught up in frivolous court battles.

However, he said if applied properly, the effects test would better target the misuse of market power than the existing rules.

He said the Australian Competition and Consumer Commission would play a large role in ensuring the effects test was used properly if the Federal Government were to adopt the measure.

“The ACCC will have to be careful with their selection of cases and avoid, for example, cases where it’s just robust behaviour, innovation or efficiency that has led to another company failing as opposed to cases that are due to exclusionary conduct.”

The review’s author, Professor Ian Harper, has defended the need for an effects test, saying that big businesses should be able to play competitively, like in a game of football, but be penalised if their actions harm the game.

The review’s recommendations come after Coles was fined $11.5 million by the Federal Court in December after it was found to have engaged in unconscionable conduct in its dealings with suppliers.

AAP