Ministers are said to be frustrated that supermarkets discount strong beer, wine and spirits to the extent that they are loss leaders.
The government would ideally like to force retailers to raise the price of alcohol and is admitting for the first time that it is prepared to "regulate" if necessary.
Ministers are preparing to deal with a legal challenge because competition law prevents the government from directly interfering in the decision-making of private companies.
The rules on advertising bargain alcohol offers could be tightened up with restrictions similar to those on tobacco advertising.
The Department of Health said the review "will consider in what circumstances price, including discounting, advertising and other forms of promotion, drives overall consumption of alcohol and problem drinking in particular".
It is due to report back in July.
In December, it was revealed that children's minister Ed Balls was considering a 9pm watershed on alcohol advertising and a ban on drink advertising on replica football shirts, as part of an inquiry into the commercialisation of childhood.
Tesco was heavily criticised by MPs at the end of last year for encouraging binge drinking by selling alcohol below cost price.
The supermarket's chief executive Sir Terence Leahy was branded "the godfather of British binge drinking" by John Grogan, Labour MP for Selby.
Tesco labelled Grogan's claims "offensive and inaccurate".