US lawmakers, in letter, question McDonald’s CEO about algorithmic pricing practices

FILE PHOTO: The logo of a McDonald's Corp restaurant is seen in Los Angeles, California, U.S. October 24, 2017. REUTERS/Lucy Nicholson/File Photo

Nov 3 - US Senator Elizabeth Warren and four other lawmakers questioned McDonald's use of algorithmic pricing tools in a letter to CEO Chris Kempczinski, which the lawmakers shared with Reuters.

The letter, dated November 2, cites a Reuters story from September 29 that found McDonald’s uses machine learning algorithms to generate what the company calls the “optimal price” recommendations for each menu item at each restaurant, based in part on an estimate of how much each store’s typical patrons are willing to pay.

“We are concerned that McDonald’s may be using AI to squeeze consumers into paying higher prices, and that its AI pricing tools may facilitate collusion between franchisees who should be operating as competitors,” reads the letter, which was signed by Warren, a Massachusetts Democrat, along with Democratic Representatives Greg Casar, Becca Balint, Jesus Garcia and Mary Gay Scanlon.

The letter asks Kempczinski several questions, including whether the pricing tools use individual consumer data from McDonald's loyalty program, how franchisees might be encouraged to use the tools, and what antitrust review was done before the tools’ deployment. The lawmakers requested a response by November 16.

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McDonald's did not respond to a request for comment about the letter. In a statement following the earlier reporting by Reuters, it said its pricing tools do not base recommendations on individual customers. It also said its franchisees are free to set their own prices and that its pricing tools are “not a mandate.”

The company also described Reuters reporting as “speculative and uninformed” claims that “attempt to recast a standard business practice as something controversial.”

Three franchisees told Reuters for its September story that the pricing engine’s recommendations have widened price differences between nearby restaurants.

Two consumer class action lawsuits have been filed in federal court in recent weeks alleging the company illegally coordinates menu prices across franchisees and company-owned restaurants through a centralized algorithmic pricing system.

"AI does not set the price of a Big Mac or any other menu item," the company said after the first suit was filed. It said franchisees make their own pricing decisions and that the use of pricing recommendation tools and analytics is widespread.

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