The competition watchdog may block Woolworths from taking over the Hawker Supa IGA in Canberra's north.
The Australian Competition and Consumer Commission (ACCC) has released the initial findings of its The Hawker Supa IGA is the only full-line independent supermarket in the local market and is the only Supa IGA in north Canberra.
The commission says a take over by Woolworths would substantially reduce competition in the area.
It says that would be hard to fix due to high costs and regulatory barriers faced by any future competitors.
"Market inquiries have indicated that the Hawker Supa IGA differentiates its offerings from its competitors in terms of price, product range and service," ACCC chairman Rod Sims said.
"This differentiation represents a competitive response to the offer of rival supermarkets, providing additional choice to consumers." The statement of issues is open for comment until January 17.
A final decision is now expected to be made by February 7.