McDonald's artificial intelligence-supported pricing policy created controversy in the USA

McDonald's increased use of artificial intelligence in its pricing policy created controversy in the USA.

According to the news obtained by Reuters based on internal screenshots and nine sources, McDonald's pricing system examines millions of transactions made every day in approximately 14 thousand restaurants with machine learning algorithms.

The system creates a price recommendation, which the company defines as the "best price", on a restaurant basis for each product, from Big Mac to discounted coffee.

IT CALCULATES HOW MUCH THE CUSTOMER WILL PAY

One of the variables used in the pricing system is how much customers are willing to pay in a particular region.

In the system screens reviewed by Reuters, the price sensitivity of restaurants was classified as low, medium or high; It was observed that "the payment willingness of customers in your region" was also taken into account in this calculation.

The platform also tracks prices on the online menus of competitors like Wendy's and Burger King.

21 PERCENT DIFFERENCE TO THE SAME BIG MAC

The review conducted by Reuters on McDonald's mobile application in September also revealed the price differences between restaurants close to each other.

While a Big Mac was sold for $5.69 at a company-owned restaurant in Fresno, California, the same product was priced at $6.89 at another company-owned restaurant just two miles away.

The price difference between the two restaurants reached 21 percent.

Reuters could not confirm whether this difference was directly due to the AI ​​system's recommendations.

ALLEGED PRESSURE AGAINST FRANCHISE OWNERS

McDonald's argues that franchise operators are free to set their own prices.

However, five restaurant owners who spoke to Reuters claimed that the company put pressure on them to use artificial intelligence-supported pricing tools.

It was seen that a document of the company dated June recorded in detail the extent to which franchise operators deviated from the recommended prices.

Former franchise operator Karen King stated that company managers contacted them in case of deviation from price recommendations, and said that "you don't have much choice" regarding pricing anymore.

THE COMPANY SAID 'RECOMMENDATION, NOT REQUIREMENT'

McDonald's, on the other hand, argued that the pricing system was not a mandatory practice.

The company stated that restaurants operate under different cost and market conditions and that the pricing portal is a tool that helps franchise operators set appropriate prices for customers.

McDonald's described some of the evaluations in Reuters' news as "speculative and uninformed".

THE COMPANY'S REVENUE MODEL IS ALSO IN DISCUSSION

It is stated that McDonald's artificial intelligence-supported pricing system also causes a conflict of interest between the company headquarters and franchise operators.

The company headquarters derives a significant portion of its revenue from its share of the total sales of its franchise restaurants. Therefore, attracting more customers with lower prices can increase McDonald's total revenue.

Franchise operators, on the other hand, are trying to maintain their profitability with higher prices due to the increase in wages, rent and other operating expenses.

According to the estimate of the US National Restaurant Association, operating expenses of restaurants have increased by 36 percent since 2019.

CLASS ACTION AGAINST ARTIFICIAL INTELLIGENCE PRICE SYSTEM

The dispute also moved to the judiciary.

In the class-action lawsuit filed against McDonald's in federal court in Chicago, it was claimed that the company illegally coordinated menu prices between franchise restaurants and company-owned branches through its artificial intelligence-supported pricing system.

The lawsuit argued that the algorithms were trained on non-public data and that independent businesses should independently set their own prices.

McDonald's denied the accusations.

The company stated that "Artificial intelligence does not determine the price of Big Mac or any other product" and stated that the final price decision belongs to franchise operators.

ARTIFICIAL INTELLIGENCE PRICING UNDER THE SPOTLIGHT

The use of algorithms in price determination in the USA has recently been on the agenda of regulatory authorities.

Numerous lawsuits have been filed alleging that algorithms lead to price coordination between competing companies for hotel rooms, rental housing and various consumer products.

It was noteworthy that McDonald's terms of use on its pricing portal include a warning that franchise operators can be considered competitors of each other and that they must fully comply with competition laws.

McDonald's artificial intelligence-supported pricing system is currently under scrutiny not only because of price differences, but also because of the debates about the extent to which customers' ability to pay can be used to determine prices and whether algorithms distort competition.