McDonald's Corporation (MCD.US) sued over AI pricing tool, accused of facilitating algorithmic collusion among U.S. franchisees

McDonald's Corporation (MCD.US) is facing a federal lawsuit. The complaint alleges that its AI-enhanced pricing tool violates antitrust law by sharing non-public data with franchisees that may compete with each other in the same market. The lawsuit was filed Friday in Illinois. The complaint says McDonald's Corporation's pricing tool uses artificial intelligence to collect data that competing franchisees typically would not share, such as store-level sales data. The Chicago-based burger giant says it provides the tool to U.S. franchisees to help them set prices for their respective restaurants. The lawsuit also blames the pricing system for rising prices at McDonald's Corporation in the United States. "McDonald's Corporation built and deployed for years its own information-sharing pricing platform, using its millions of daily transactions to set menu prices for thousands of restaurants across the country," the complaint states. "The result is algorithmic pricing monopoly imposed on already cash-strapped customers." McDonald's Corporation said Tuesday that the lawsuit is "rife with inaccuracies" and that the company will defend itself vigorously. "AI does not set menu prices at McDonald's Corporation restaurants McDonald's Corporation franchisees do," the company said in a statement. "Franchisees can use optional tools to help them make the best decisions for their own business and customers, but these tools do not in any way automate, coordinate or fix prices." The lawsuit was filed on behalf of Michael Thomas, a consumer in DeKalb, Illinois. According to the complaint, Thomas frequently visits McDonald's Corporation and orders a Quarter Pounder with Cheese, fries and a Coke. The complaint says Thomas noticed price differences among McDonald's Corporation locations near his home. McDonald's Corporation says it has used AI-enhanced pricing tools for more than a decade. The program determines optimal prices for menu items based on store sales, location and other factors, including competitor prices. McDonald's Corporation says it was already collecting data and recommending prices to franchisees long before it adopted AI-enhanced tools. Franchisees own and operate 95% of McDonald's Corporation's 14,000 U.S. locations. "All we do is provide context," a McDonald's Corporation spokesperson said. "We do not influence menu pricing at restaurants in any way." But the complaint says McDonald's Corporation has "significant leverage" over its franchisees and can pressure them to follow its pricing recommendations. For years, McDonald's Corporation has experimented with various value strategies in the United States and other markets as it tries to win back lower-income consumers who are visiting fast-food chains less often. But franchisees do not always follow its guidance. On an August call with investors, McDonald's Corporation Chairman and CEO Chris Kempczinski said only 60% of U.S. restaurants offer the 10 items under $3 that McDonald's Corporation proposed. "As you know, in our system, this is not something we can make happen with the flip of a switch," Kempczinski said. "It requires communication with franchisees." The lawsuit asks a judge to certify the case as a class action and seeks damages for class members from McDonald's Corporation. It also seeks to bar McDonald's Corporation from enforcing agreements that restrain competition.