WASHINGTON, Oct 8 (Reuters) – An antitrust lawsuit filed in the United States against McDonald’s this week alleges that the fast-food giant is using AI-based tools to set prices for its menu, marking the latest case in which companies are accused of using new technologies to collude and harm consumers.
The plaintiffs have already filed lawsuits against companies in sectors ranging from hotels to health insurance and, now, fast food. The allegations are pending in class actions across the country, with outcomes so far varying.
The McDonald’s case centers, in part, on the company’s franchise model, in which most of its 14,000 stores in the U.S. are independently owned.
The suit alleges that store owners should compete freely, but are pressured by McDonald’s to use its “pricing mechanism” or risk losing their franchise status, driving up the price of the Big Mac, French fries and other items on the menu for millions of customers.
McDonald’s told Reuters that its franchisees set prices individually and that “AI does not set the price of a Big Mac or any other item on the menu.”
The lawsuit arose after a Reuters report detailing how McDonald’s is using AI to guide menu prices. The class action filed in the federal court in Chicago alleges that the company leverages the technology “to exploit consumers down to the last fry.”
NEW TECHNOLOGY, OLD LAWS
The courts are still trying to understand how to apply antitrust laws with decades of existence to AI and other modern software tools that can help companies share and instantly adjust their pricing decisions.
There is nothing inherently illegal in the use of computer algorithms to make business decisions about issues such as prices, according to the courts. However, antitrust legislation can prevent competing companies from using such tools to coordinate their decision-making when this raises costs for consumers.
New technologies are giving rival companies access and visibility into each other’s pricing decisions, exposing them to allegations that they would be coordinating illegally, said Maurice Stucke, an antitrust law expert who teaches at the University of Tennessee College of Law.
“As more companies outsource pricing decisions to an algorithm, it’s to be expected that there will be more cases of collusion,” Stucke said.
Results have varied in the cases filed to date. In a July ruling, a U.S. federal appellate court sided with the plaintiffs, reinstating a suit alleging that Atlantic City’s casino-hotels used shared pricing software to raise room rates.
The Third Circuit Court of Appeals, based in Philadelphia, said that past technical communication limitations made collusion harder. “Today, these algorithms have the capacity to overcome such gaps,” the court said.
Other courts have been less receptive to similar claims. The Ninth Circuit, based in San Francisco, rejected last year a suit against major Las Vegas hotels, concluding that the use of shared pricing recommendation software amid rising room costs was not sufficient to sustain an antitrust claim.
One of the longest-running series of cases, involving RealPage, resulted in partial settlements but is still ongoing. RealPage, owned by private equity firm Thoma Bravo, reached settlements in some lawsuits alleging that apartment complex owners used its tools to artificially inflate rental prices, including a suit brought by the U.S. Department of Justice.
The company, which denies violating antitrust law, secured a win in another case last month, when it convinced a federal judge in New York to block a new state law that prohibited property owners from using algorithmic pricing tools.
The judge ruled that the state cannot outlaw “normal business conduct simply because it is facilitated by software.”
PRICING
The lawsuit against McDonald’s appears to be the first to argue that franchises operating under the same brand are misusing shared pricing technology to charge customers excessive prices. Most other cases alleged anticompetitive pricing collusion among companies operating under brands that are completely distinct.
Daniel Francis, who teaches antitrust law at New York University School of Law, said that the scope of independence of franchisees to set prices will be a key issue in the case. The stores may have different owners, he said, but their franchise status means they naturally coordinate on menus and how the foods are sold.
“These branches simply are not competing with each other in any meaningful sense: they are competing against other networks,” he said. “The presence of an algorithm does not change any of that.”
The suit alleges that 95% of McDonald’s stores in the U.S. are independently owned, and that the company oversees them to ensure they follow the recommendations of its “pricing mechanism.” The suit seeks monetary damages not specified for a proposed class of millions of customers.
McDonald’s said in a statement that its technology “does not automate, coordinate or fix prices in any way,” but instead enables franchisees “to make the best decisions for their business and customers.”
Jeffrey Shinder, an antitrust attorney not involved in McDonald’s case, said that lawsuits over algorithm-determined pricing are testing the law’s ability to keep pace with technological changes and could multiply amid a public backlash against AI.
“I hope to see more cases like this,” he said.
