A federal antitrust lawsuit filed against McDonald's this week alleges the company uses an AI-powered pricing engine to set menu prices across U.S. locations, overcharging customers for Big Macs and fries. McDonald's denies using AI to determine what individual customers will pay. It says it gives franchisees “tools, resources, research and recommendations to help them make informed decisions.”
Who Sets the Price
The lawsuit puts company pricing practices under scrutiny as food businesses expand their use of digital systems. Earlier this year, Kroger said it uses an AI platform called FlashFood to mark down perishables nearing the end of their shelf life and promote them to shoppers through an app.
Electronic shelf labels display prices on digital screens. They’re becoming more common at Kroger, Amazon Fresh, Walmart and Whole Foods, as well as at U.K. supermarkets Tesco, Morrisons and Asda. Global financial platform Revolut recently trialed facial-recognition checkout in select coffee shops, where customers can pay with a glance. Amazon Fresh, Whole Foods, Tesco, Morrisons, Asda and Revolut didn’t immediately respond to CNBC’s requests for comment on AI use.
Miroslava Marinova, a senior lecturer of commercial law at the University of East London, said dynamic pricing means changing prices in response to conditions such as demand, timing, capacity or competitors’ prices. “It is not new. Airlines, hotels, and ride-hailing services have used it for years,” she said.
Bank of England economists Clare Lombardelli and Rupal Patel said in April that more sophisticated technology is making prices change more often and become more individualized. Firms could charge “as close to the maximum price a consumer is willing to pay for a good or service,” they said, calling the practice “perfect price discrimination.”
Data and Different Prices
Marinova and the economists said electronic shelf labels and facial-recognition checkout are changing how much information companies can collect. That includes transaction histories, browsing behavior, location and purchasing patterns. On Wednesday, U.K. supermarket chain Sainsbury's released SmartLists, an AI feature that helps customers create shopping lists and find products by uploading pictures or typing meal ideas.
“The traditional distinction between dynamic and personalised pricing is becoming less clear in practice,” Marinova said. Dynamic pricing responds mainly to market conditions, while personalized pricing uses information about consumers to estimate willingness to pay. Retailers are combining market information with more detailed consumer data, she said, and that makes the boundary between the two thinner.
The Bank of England economists said these pricing changes could make it harder for statisticians to measure and interpret month-to-month inflation. The consumer price index relies on a representative sample of prices, they said. “That works well when prices mostly move slowly and uniformly. But when prices shift continually – and differently for each shopper – the idea of a 'representative' price becomes strained,” they added.
They also said personalized pricing “splinters the consumer experience,” leaving households with increasingly different inflation rates. “And when prices differ for the same thing, inflation becomes even more personalised – and aggregate measures may no longer reflect households' experience,” they said.
Limits and Consumer Choice
Marinova said dynamic and personalized pricing can discount items for some consumers and make some products and services more accessible. But individualized pricing can leave shoppers unsure whether a price reflects market conditions or information about their own behavior.
“If consumers cannot understand why they received a particular price, cannot compare it with prices offered to others, and cannot effectively switch to another supplier, the normal disciplining effect of consumer choice becomes weaker,” Marinova said.
Walmart and Kroger have said in recent years that they don’t use dynamic or surge pricing to set individualized prices, and that they use tools to streamline operations. New York requires most businesses using customers’ personal data to set prices to disclose that use clearly. Maryland has restricted food retailers and delivery services from using personalized, data-driven pricing to charge higher prices for certain food. New Jersey and Connecticut have enacted measures targeting “surveillance pricing.”