McDonald’s is facing a proposed class-action lawsuit that could test how U.S. antitrust law applies to increasingly sophisticated pricing technology used by large franchise businesses.
The case, filed in federal court in Chicago, accuses McDonald’s Corp. of facilitating coordination over menu prices between the company and independently owned restaurants. The consumers bringing the lawsuit contend that a system used to provide franchisees with pricing recommendations reduces the competition that should exist among individual McDonald’s locations, according to Reuters.
McDonald’s disputes that characterization.
The company says franchisees retain control over the prices charged at their restaurants and that artificial intelligence does not independently determine what customers pay. McDonald’s described the allegations in the lawsuit as speculative and said they reflect a misunderstanding of how its pricing practices work, Reuters reported.
The dispute puts a relatively new question at the center of a familiar area of competition law: What happens when businesses that independently set prices rely on sophisticated technology and centralized data to help make those decisions?
According to Reuters, the lawsuit alleges that McDonald’s and its franchisees have participated in an unlawful price-coordination arrangement dating to 2019. The plaintiffs are seeking class-action status on behalf of potentially millions of U.S. customers.
The litigation follows a Sept. 29 Reuters investigation into McDonald’s use of machine-learning technology to develop pricing recommendations for its U.S. restaurants.
Reuters reported that the system analyzes large volumes of transaction data from McDonald’s roughly 14,000 U.S. locations and can recommend prices for individual products. The technology considers information including local purchasing behavior and estimates of what consumers in different markets may be willing to pay.
That does not necessarily mean restaurants charge identical prices.
McDonald’s has said restaurant operators make the ultimate pricing decisions. Prices can consequently vary from one location to another, including between restaurants situated relatively close together.
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Reuters illustrated that variation in its earlier investigation with two company-operated restaurants in Fresno, California. A Big Mac was priced at $5.69 at one location and $6.89 at another about two miles away, according to the news organization. Reuters said it was unable to establish whether the pricing technology caused the difference.
The consumers suing McDonald’s are challenging a different aspect of the system: whether centralized recommendations informed by nonpublic business information can improperly influence prices across restaurants that would otherwise be expected to make independent competitive decisions.
Those claims have not been proven, and the filing of a lawsuit does not establish that McDonald’s or its franchisees violated antitrust law.
The case nevertheless arrives as algorithmic pricing attracts growing attention beyond the restaurant industry. Companies can now process enormous amounts of information about demand, purchasing patterns and local market conditions when deciding what to charge. Such systems can provide businesses with more precise information, while also raising competition questions when pricing recommendations reach businesses that might otherwise compete with one another.
For McDonald’s, that debate is complicated by its franchise model. Individual operators run most of the chain’s restaurants, while benefiting from the brand, systems and other resources provided by the corporation. The lawsuit could therefore put greater scrutiny on where corporate pricing assistance ends and independent franchisee decision-making begins.
McDonald’s maintains that the final decision remains with restaurant operators.
Whether the plaintiffs can turn their allegations into a viable antitrust case will now be decided through the legal process. But the dispute places one of the world’s largest restaurant chains in a broader emerging debate over how traditional competition rules should apply when algorithms increasingly inform the prices consumers encounter.
Source: Reuters
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