The Robinson-Patman Act of 1936 is antitrust legislation that amends Section 2 of the Clayton Act of 1914, which was designed to prevent monopolies by catching early-stage practices leading to corporate mergers. Another provision of the Clayton Act prohibits price discrimination by a seller where the effect is to injure the competition. The Clayton Act was directed at firms that sold goods at higher prices in some areas and at lower prices in others to the detriment of a smaller local seller; it confined the prohibition on price discrimination to the impact on the seller. Thus, competition among buyers could be affected adversely when certain buyers received lower prices. The Robinson-Patman Act is not limited to just price discrimination. It also covers discrimination in the areas of advertising and other promotional programs, as well as in the area of providing services to competing customers.

Price discrimination occurs when a firm charges more than one price for good or services sold to customers and businesses where all other material aspects of the sales are the same (Encyclopedia Dictionary of Economics, 1986). The Robinson-Patman Act is commonly referred to as the "chain store act" because it prohibits price cutting of commodities for large buyers (chain stores, department stores, and discount houses) designed to eliminate competition from small buyers (Garman, 1997). The act makes it unlawful for any seller engaged in commerce to discriminate, directly or indirectly, in regard to the price charged to buyers of commodities of like grade and quality sold in interstate commerce for the purpose of resale.

Small businesses implied that their larger competition used their size or market power to gain lower prices from suppliers. This practice enabled the larger competitors to profitably outsell their smaller competitors. The result of this act is that smaller local buyers have restitution against a favored competitor that, because of size, efficiency, or bargaining power, could obtain lower prices from a supplier and, thus, sell products for lower prices. It became illegal for companies engaged in interstate commerce to grant discounts for the same products to large firms without granting similar discounts to smaller independent stores when the selling costs do not vary between the two. The law does permit selling at different prices when costs are based on different methods or quantities involved in the manufacture, sale, or delivery of products (Garman, 1997). The Robinson-Patman Act was intended to protect competitors as well as competition.

According to Meier and colleagues (1998), enforcing the act is a complex task. To prove a price-discrimination case, a market analysis must be conducted which shows that actual competitive injury has occurred or that the seller engaged in significant and sustained price discrimination with the intention of punishing a competitor. However, according to Garman (1997), a discriminatory price may be lawful when it is charged in good faith to meet an equally low price of a competitor.