Big Mac, big data

You’ve already heard about AI’s appetite for electricity and water. But here’s a new one: It’s coming for Big Macs, too.

McDonald’s is currently facing a federal class-action lawsuit that accuses the fast food giant’s AI-powered pricing system of violating antitrust law. Its chief problem: The AI tool, which uses daily transactions and local data to suggest menu prices across its 14,000 US restaurants, shares nonpublic information between franchisees that would otherwise compete. “The result is algorithmic price-fixing aimed at customers who are already stretched thin,” the suit alleges.

McDonald’s responded that the lawsuit mischaracterizes how the pricing system actually works. AI recommendations are optional, and franchisees still make the final call, it says—though some store owners say they feel pressured to follow the bots’ business advice.

However the case ends, McDonald’s isn’t the first to experiment with personalized algorithmic targeting of customers—and odds are it won’t be the last.

Pricing bots are popping up everywhere

DraftKings is facing similar allegations about predatory algorithms in a proposed class action filed in Massachusetts. Citing a New York Times investigation, the lawsuit claims that the sportsbetting company used machine learning to flag users most likely to lose the most money, then targeted them with more promotions. Plaintiff Daniel Vest says he lost thousands of dollars and received at least 70 emails, texts, and app notifications encouraging him to keep betting in a single month.

“DraftKings does not use AI to target customers based on losses, nor do we use AI to target customers based on indicators of potential problem gaming,” a DraftKings spokesperson wrote in a statement.

While that’s a lot of algorithmic meddling, from burgers to sports bets, at least your Great Value groceries appear safe for now: After scrutiny over whether Walmart’s digital shelf labels and AI tools would be used to create targeted pricing, CEO John Furner drew a clear line. “We price the product, not the person,” he said.

The other side of the story

The muted reaction on Wall Street suggests that investors don’t yet see these lawsuits as a major earnings threat. If that sentiment holds, companies may have little financial incentive to stop experimenting with algorithmic pricing, especially if the upside shows in the margins before the legal risk shows up in earnings.

But proponents of algorithmic pricing argue that smarter systems can simply help businesses do a better job matching prices to local demand.

Research from economists Stefano DellaVigna and Matthew Gentzkow found that large retail chains often charge nearly identical prices across very different markets, leaving millions in potential profit on the table. The same study also found that uniform pricing can also leave poorer households paying relatively more than richer ones, suggesting that more flexible pricing could sometimes benefit both businesses and consumers.

If that’s where pricing is headed, maybe it’s worth an audible gasp at every price tag within earshot of your phone.—SY