McDonald's Corporation (MCD.US) faces a class action lawsuit in the U.S.! Accused of using an AI pricing system to illegally manipulate menu prices.

McDonald's Corporation (MCD.US) is facing a class action lawsuit in a federal court in Chicago, accusing the fast-food giant of using an artificial intelligence (AI) pricing system to illegally manipulate menu prices between its franchised restaurants and company-operated restaurants. The lawsuit, filed last Friday, alleges that McDonald's Corporation conspired with independent franchisees to manipulate prices using algorithms trained on non-public data, in violation of U.S. antitrust law. The lawsuit cites related media reports and notes that other fast-food companies have also begun using AI to assist with pricing and other operational tasks. "Independently operated businesses must set their own prices independently," the lawsuit states. McDonald's Corporation said in a statement on Monday that the allegations are "baseless and lacking sufficient informational support." The company said: "AI does not set prices for the Big Mac or any other menu item." McDonald's Corporation said franchisees make their own pricing decisions, and that the use of pricing suggestion tools and analytics tools is common across various industries. McDonald's Corporation Pushes AI Pricing Reports cited in the lawsuit point out that McDonald's Corporation is increasingly relying on AI to set menu prices in the U.S. market and some overseas markets. After reviewing screenshots of McDonald's Corporation's pricing backend from August this year and interviewing nine people with firsthand knowledge, media reported that McDonald's Corporation's pricing engine relies on machine learning algorithms to continuously analyze data from millions of transactions daily across nearly 14,000 stores, generating what the company calls an "optimal price" for every menu item at every storefrom the Big Mac to discounted coffee for seniors. Three franchisees said the pricing engine has further widened price disparities for the same product across different stores, with prices differing even between stores in the same area just a few blocks apart. Media verified prices across locations through McDonald's Corporation's mobile app in September and indeed found price disparities. For example, a Big Mac at a company-operated store in Fresno, California, was priced at $5.69, while at another company-operated store just two miles away, the same burger was priced at $6.8921% higher. However, it could not be confirmed whether the price difference came from suggestions generated by the pricing engine or other factors. The report noted that although McDonald's Corporation publicly states that franchisees can independently set in-store prices, five store operators said headquarters pressured them to use this AI pricing tool. An internal notice sent to franchisees shows that in January of this year, McDonald's Corporation introduced a mandatory requirement in its updated operating standards, requiring franchisees to "actively cooperate with McDonald's Corporation officially recognized pricing consultants and pricing tools." McDonald's Corporation issued a statement saying that operating costs vary from store to store, and even stores just a few miles apart may operate in different market environments. At an investor meeting in late September, McDonald's Corporation said its "industry-leading" pricing engine is an important part of the company's overall value strategy; franchisees have also recognized the need to retain low-priced menu items to attract lower-income consumer groups. The company also said the pricing backend "is only a tool, not a mandatory order. It provides recommendations for individual stores to help franchisees balance customer interests and make more prudent business decisions." McDonald's Corporation also characterized the related media report as "subjective speculation lacking factual basis, attempting to portray a routine business practice as a controversial event." It is understood that McDonald's Corporation has been using some version of a pricing tool since at least 2019. Some franchisees reported that during the pandemic and the subsequent period of high inflation, the pricing engine recommended significant price increases. But in recent months, the engine has shifted toward a more conservative pricing strategy, even recommending price cuts for some menu items, creating tensions between headquarters and franchisees. Against the backdrop of already slowing growth, lowering prices, attracting more customers, and driving overall revenue ultimately benefits McDonald's Corporation headquarters' profits. This is because the vast majority of headquarters revenue comes from taking a percentage share of franchisees' total revenue, and individual store profit margins do not directly affect headquarters earnings. Conversely, franchisees have a stronger incentive to raise prices to cover rising wages, rent, and other store expenses. The National Restaurant Association estimates that restaurant operating costs have cumulatively risen 36% since 2019. But now, when it comes to pricing, McDonald's Corporation franchisees actually have little room for independent choice. McDonald's Corporation headquarters holds powers that can affect franchisees' business survival, such as franchise renewal eligibility and approval authority for opening new stores. McDonald's Corporation CEO Kempczinski mentioned at an investor communication meeting in August that because headquarters recently updated its franchisee business evaluation mechanism, "in some circumstances, failure to follow pricing guidance will also be included in evaluation discussions." Reputation and Regulatory Risks It is worth noting that several consumer companies have previously encountered strong public backlash immediately after algorithmic differentiated pricing was exposed. In 2024, the CEO of Wendy's (WEN.US) publicly stated plans to test a "dynamic pricing" model. But this immediately drew widespread criticism, with concerns about unfair price fluctuations. Wendy's subsequently said the remarks had been misunderstood and confirmed to media that the company ultimately did not launch the system. U.S. grocery instant delivery platform Instacart also used an AI tool in small-scale testing to show different grocery prices to different shoppers. After a related study was exposed, consumers and lawmakers raised criticism, and the company discontinued the AI pricing tool last December and promised never to use personal information to determine product prices. Meanwhile, according to the pricing backend terms of service reviewed by media, McDonald's Corporation also warns store operators that the system carries potential legal risks. The pricing backend terms of service state that store operators "may be competitors of one another," and therefore "it is particularly critical that all tool users fully understand and comply with antitrust and competition-related laws." The terms also state that franchisees should consult their own lawyers when they have questions; the document still retains a statement that franchisees "always have the autonomy to make the final determination of selling prices." William Kovacic, director of the Competition Law Center at George Washington University, believes that against the current backdrop of reviews by the Federal Trade Commission and other antitrust regulators into algorithmic pricing collusion, this warning text itself "already acknowledges that potential problems do indeed exist here." But other legal experts offer a different view, saying that the actual regulatory litigation risk McDonald's Corporation faces is not highthe competing entities are merely individual franchisees, and judicial precedents over the past decades have generally granted brand owners broad authority to allow brands to control franchisee pricing behavior.