The government could offer its own low-cost baby formula under a brand such as the NHS to combat the high prices and lack of choice in the market, the UK competition watchdog has suggested.

The Competition and Markets Authority (CMA) said another “backstop” measure could be for the government to regulate and set a price or profit-margin cap on retailers as a way to bring prices down for parents more quickly.

The potential measures formed part of the CMA’s interim report on the infant formula market after the watchdog identified that a lack of competition in the market had led to soaring prices, taking advantage of an ingrained belief among parents that higher cost equates to better quality for their children.

The CMA report set out a number of potential recommendations including extending the ban on the advertising of infant formula to follow-on formula, or going as far as “prohibiting all brand-related advertising”.

Sarah Cardell, the chief executive of the CMA, said: “We’re concerned that companies don’t compete strongly on price and many parents – who may be choosing infant formula in vulnerable circumstances and without clear information – opt for more expensive products, equating higher costs with better quality for their baby.”

The provisional findings, which will feed into a final report to be published early next year, include some backstop measures that the CMA said were not actively recommended but that the government could make “with the aim of bringing prices down directly”.

One option was for the government to procure its own infant formula from a third-party manufacturer at a competitive price and sell it under an established name, such as the NHS, or invest in creating a new brand for the market.

“This intervention aims to introduce greater choice for parents and a lower price point,” the CMA said. “In turn, it may also put downward pressure on other manufacturers’ prices.”

Another option is to introduce regulations to place a maximum price cap on baby and infant formula, or establish a profit-margin cap, which the Greek government did earlier this year with the aim of making products more affordable.

The Iceland boss, Richard Walker, has called on the UK government to introduce a price cap to stop parent “exploitation” in the infant formula market.

The CMA said there might be a case for direct government intervention because other measures it does recommend, such as clearer, more accurate and impartial information in promotions in-store, might still fail to reduce prices or lead parents to stop equating high prices with better quality.

“Parents’ deeply entrenched behaviours in this market, understandably driven by wanting to do what is ‘best’ for their baby, may mean that those measures have limited impact in bringing down prices or giving parents confidence to purchase cheaper options, at least in the short to medium term,” the CMA said. “More interventionist measures may therefore be needed to bring prices down in the market more directly, and with more certainty.”

The CMA launched its investigation into the UK market last November after finding that manufacturers raised prices by as much as 36% on some brands in two years and managed to increase profit margins during the cost of living crisis.

“The rising costs of infant formula in recent years has hit those who can least afford it hardest,” said Clare Murphy, the co-director of the infant feeding charity Feed. “We know some mothers make sacrifices to purchase premium brands on the grounds they believe these are best for their babies. These are an important set of recommendations that should go some way to reducing the cost burden on families of this distorted market.”

The CMA said three companies – Danone, Nestlé and Kendal – accounted for more than 90% of the market.

The regulator said it was concerned there was too little choice in the market, with a very limited number of own-label products, and that few parents were switching to cheaper options where available.

A spokesperson for Danone said: “In Danone’s experience the UK formula milks market is competitive and dynamic, and we will continue to work constructively on ways we can carry on delivering value to parents, backed by continued investment in world leading research and innovation.”