For Charles Leakey, owner of Leakey's Bookshop in Inverness, the Competition Commission's suggestion that Britain needs yet more supermarkets was as unwelcome as it was perverse. "It is an absurd piece of news. I have been amazed all day at it," he said last night. In the capital of the Scottish Highlands, it is estimated that more than 50p in every pound spent by the city's 66,000 shoppers ends up in the tills of one of three local Tesco stores.

Yesterday, the commission published preliminary findings of its third report in seven years into Britain's grocery sector, which is dominated by four big chains – Tesco being by far the largest. Watchdogs concluded that the current situation offered shoppers unprecedented value, choice and convenience, and denied that Tesco enjoyed an unfair advantage because of its size. The commission even recommended making it easier for the retail giants to open more stores to promote competition between them – a suggestion which infuriated campaigners against the growing might of supermarkets.

The stranglehold that our biggest supermarket chain exerts over Inverness has led to it being called Britain's premier "Tesco town". Perhaps to the delight of the commission, new competition is in the pipeline; Asda plans to open a superstore covering 70,000 square feet. Mr Leakey and other small shop owners have watched powerlessly, and with dwindling profits, as the big chains advance into their territory. "The centre of town has been eviscerated from a commercial point of view," he said. "The heart has been torn out and most of our customers relocated to the big superstores. Before the supermarkets arrived it was a thriving, socially cohesive and a great place to be."

Campaigners such as Mr Leakey greeted the commission's report with fury and ridicule. They believe the head of the inquiry, Peter Freeman, has issued recommendations which will drive another nail through the heart of the Britain's high streets. After studying the retail sector for 18 months, Mr Freeman concluded that families would get an even better deal if planning laws were overhauled, allowing rival supermarket chains to compete in towns dominated by a single retailer.

While warning that the big four had frustrated competition by buying up potential sites to deny them to rivals – a practice known as "land banking" – he said he did "not see evidence of unfair distortions in competition between large grocery retailers and small stores".

Mr Freeman added: "Having looked at local grocery markets, in most areas shoppers have a good choice and benefit from the strong competition such as value, choice, innovation and convenience. On most counts the groceries market delivers just that." The British Retail Consortium described the inquiry as "costly and time consuming" and said it hoped it would be the "last for a long time". Other critics said Mr Freeman had focused too much on a narrow definition of competition, based on the drive for ever-cheaper food.

The Campaign to Protect Rural England said the report showed "a depressing failure to care about the interests of local communities, which threatens to consign England's towns to more monotony". Tom Oliver, its head of rural policy, added: "We are offered a bleak prospect of yet more ruthless price wars which undermine farmers' livelihoods and yet more land-hungry superstores in sprawling, car-dependent suburbs."

The Federation of Small Businesses, meanwhile, said the commission had let the public down. "Small retailers and suppliers are being squeezed out because of practices such as selling items below the cost of production, bullying suppliers and increased parking fees in high street compared to free parking at supermarkets," said its spokesman, Matthew Knowles.

Andrew Simms, of the New Economics Foundation think-tank, said Mr Freeman's findings were a "travesty". "It is so bad it is almost comic," he added. "Supermarket dominance is like a Chinese finger-trap and the commission is pushing us into a situation from which it will be increasingly hard to escape. "By recommending the easing of planning conditions in favour of supermarkets, the commission is about as out of touch with reality as a person who believes Richard Branson needs more publicity."

Friends of the Earth, one of the groups which called for an inquiry by the Competition Commission in the first place, said: "Today's report is a totally inadequate response to the growing power of the big four supermarkets. The commission acknowledges that supermarkets bully suppliers and reduce consumer choice, but then bizarrely recommends making it easier for them to expand."

Mr Freeman's report calls for the introduction of a "competition" test to the planning system to replace the current "needs" test, which gauges whether there is enough demand in an area to justify opening a supermarket. The new test would encourage planners to look more favourably on retailers which did not have stores nearby.

But that offers little hope to traders such as Mr Leakey. "What we want is to get local, independent shops going again. That's what people really want," he says. "Luckily for me, supermarkets aren't interested in dealing in second-hand books but, if they could make a profit from it, they would."

(By Jonathan Brown and Charlotte Browne, The Independent, 01/11/2007)