Fast-food Giant McDonald’s AI-Powered Pricing Practices Face Antitrust Challenge Over Consumer Costs

A federal antitrust lawsuit filed against McDonald’s this week alleges that the fast-food giant is using artificial intelligence-powered tools to influence menu prices, adding to a growing number of legal challenges claiming that businesses are using new technologies to coordinate pricing and harm consumers.

 

Similar claims have been brought against companies in industries ranging from hotels and real estate to health insurance, with the fast-food sector now facing scrutiny. The proposed class action lawsuits are pending in courts across the United States, with mixed results so far.

 

The McDonald’s case centres partly on the company’s franchise model, under which most of its 14,000 US restaurants are independently owned. The lawsuit alleges that restaurant operators should be free to compete on price but face pressure from McDonald’s to use its ‘pricing engine’ or risk losing their franchise status. This, it claims, pushes up the cost of Big Macs, fries and other menu items for millions of customers.

 

McDonald’s told Reuters that its franchisees set their prices independently and that “AI does not set the price of a Big Mac or any other menu item”.

 

The lawsuit followed a Reuters report detailing how McDonald’s uses AI to guide menu pricing. Filed in a federal court in Chicago, the proposed class action accuses the company of exploiting its technology “to nickel-and-dime consumers down to the last French fry”.

 

New Technology, Old Laws

 

Courts are still grappling with how to apply decades-old antitrust laws to artificial intelligence and other modern software tools that allow businesses to share pricing information and adjust prices rapidly.

 

Using computer algorithms to make commercial decisions, including setting prices, is not inherently illegal, courts have said. However, competition law can prohibit rival businesses from using such tools to coordinate their decisions when the arrangement raises costs for consumers.

 

New technologies give competing companies access to information about one another’s pricing decisions, exposing them to allegations of unlawful coordination, said antitrust expert Maurice Stucke, who teaches at the University of Tennessee’s law school. In several pending cases, companies are alleged to have pooled pricing data through a shared third-party provider.

 

“As more companies outsource pricing to an algorithm, you can expect them to have more instances of collusion,” Stucke said.

 

Court rulings in the cases brought so far have been mixed. In an opinion issued in July, a federal appeals court sided with plaintiffs by reinstating a lawsuit alleging that casino-hotels in Atlantic City had used shared pricing software to drive up room rates.

 

The Philadelphia-based 3rd US Circuit Court of Appeals said technological limitations had historically made communication and collusion more difficult. “Today, these algorithms have the capacity to bridge any such gaps,” the court said.

 

Other courts have taken a less receptive approach to similar claims. Last year, the San Francisco-based 9th US Circuit Court of Appeals rejected a lawsuit against major Las Vegas hotels, ruling that their use of shared price-recommendation software, amid rising room costs, was insufficient to sustain an antitrust claim.

 

One of the longest-running groups of cases involves software company RealPage. The litigation has produced partial settlements but remains ongoing. RealPage, owned by private equity firm Thoma Bravo, has settled some lawsuits alleging that apartment owners used its tools to artificially inflate rents, including a case brought by the US Department of Justice.

 

The company, which denies violating antitrust law, secured a victory in another case last month when it persuaded a federal judge in New York to block a new state law prohibiting landlords from using algorithmic pricing tools.

 

The judge ruled that the state could not ban “normal commercial conduct just because it is facilitated by software”.

 

Pricing McDonald’s Menus

 

The lawsuit against McDonald’s appears to be the first to allege that franchisees operating under the same brand are misusing shared pricing technology to overcharge customers. Most previous cases have focused on alleged price coordination between businesses operating under entirely separate brands.

 

Daniel Francis, who teaches antitrust law at New York University’s law school, said the extent to which franchisees are independent in setting prices would be a central issue in the case. Although the restaurants may have separate owners, their franchise arrangements naturally involve coordination over menus and the way food is sold.

 

“These branches are just not competing with each other in any plausible sense: they are competing against other chains,” he said. “The presence of an algorithm changes none of that.”

 

The lawsuit alleges that 95% of McDonald’s US restaurants are independently owned and claims the company monitors franchisees to ensure they follow recommendations from its pricing engine. It seeks unspecified monetary damages on behalf of a proposed class comprising millions of customers.

 

McDonald’s said in a statement that its technology does “not automate, coordinate or fix pricing in any way”, but instead enables franchisees to “make the best decisions for their businesses and customers”.

 

Jeffrey Shinder, an antitrust lawyer who is not involved in the McDonald’s case, said disputes over algorithmic pricing were testing whether competition law could keep pace with technological change. He added that such cases could become more common as public concerns about artificial intelligence grow. “I would expect to see more of them,” he said.