How McDonald's Alleged AI Pricing Could Increase What You Pay for Fast Food
KEY POINTS:
How AI Could Influence the Price of Your Next Burger
Why Is There a Lawsuit?
How To Protect Yourself From AI-Driven Prices
Artificial intelligence might be the last thing on your mind when you go to order a burger and fries at McDonald’s, but it could be operating behind the scenes in a way that ends up costing you more. At least, that’s the assertion of a new lawsuit that alleges the fast food giant uses an AI-powered pricing system that has driven up menu prices by coordinating recommendations across thousands of its restaurants.
Regardless of the outcome of the lawsuit, which McDonald’s disputes, the case itself raises an important question: How much influence should algorithms have over the prices consumers pay for everyday purchases?
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How AI Could Influence the Price of Your Next Burger
The idea of restaurants adjusting prices based on operating costs and local market conditions is nothing new. You can normally expect that a hamburger in Manhattan would cost more than in a small Midwestern town, for example.
McDonald’s does use pricing technology to recommend menu prices based on these types of factors, according to a Reuters investigation. Based on this information, the company says it recommends pricing to its franchisees, who are then free to set whatever price they deem appropriate.
For consumers, the result could be greater price differences between locations, even those relatively close together. In fact, the Reuters investigation found that two McDonald's locations just two miles apart in Fresno, California charged $5.69 and $6.89 for the same Big Mac, a difference of 21%. Reuters couldn't determine whether AI was responsible for the difference.
However, AI-generated pricing recommendations don't necessarily mean that prices change throughout the day or that two customers standing in the same restaurant will pay different amounts for identical orders.
Why Is There a Lawsuit?
Per the Associated Press, the proposed class-action lawsuit alleges that McDonald’s used an AI-enhanced pricing tool to collect nonpublic information, including individual restaurant sales data, to recommend prices that could reduce competition between locations.
The lawsuit raises the question of whether AI-generated pricing recommendations could reduce competition among individual McDonald's locations, even if franchisees technically remain free to set their own prices. The concern is whether the technology helps restaurants compete more effectively or encourages them to charge similar, potentially higher prices.
For its part, McDonald’s disputes the allegation. The company says it does use pricing tools but that they provide optional recommendations only, and that individual franchisees are free to set their own menu prices.
Another fear is that McDonald’s could potentially use information about individual customers to create individualized pricing.
A Federal Trade Commission investigation found that companies providing pricing technology can use information such as browsing history, geographic location and shopping behavior to help retailers tailor prices.
In theory, a company might use this information to determine which customers are more likely to accept higher prices or which ones might respond to discounts. This type of personalized pricing, in which different customers could pay different prices, raises privacy concerns. However, the FTC's findings don't establish that McDonald's itself uses this type of individualized pricing.
The lawsuit is still in its early stages, and the allegations have not been proven in court.
How To Protect Yourself From AI-Driven Prices
You may not be able to control how a restaurant determines its prices, but you can still pay attention to the prices you are being charged. Whether by physically checking prices at different locations or comparing the same order at nearby restaurants through the McDonald's app, you may be able to see meaningful differences. Keeping an eye out for promotional deals can also help save money. In an economic environment in which many are pinching pennies, a little bit of effort can go a long way.
Those more concerned about the use of their data in determining prices can simply limit the information they share via websites, loyalty programs and apps. There’s no guarantee you can influence your pricing, as that is set by the restaurant, but you can minimize the amount of personal information available to pricing systems.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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