>> in >> lawsuit claims McDonald's is using an AI power tool to coordinate menu prices and drive up the cost of its food.

The Chicago based Corporation denies the claim, saying that tool is merely a recommendation engine and that the independently owned franchises set their own prices.

But the suit alleges the company is pressuring owners to use the AI pricing engine or risk their status as a franchisee.

Joining us to discuss the issue are Daniel in a junior professor of instruction in law and computer science and director of law and technology initiatives at Northwestern University.

And we hope to be joined later by Mike Bennett.

He's the associate vice chancellor for data science and artificial intelligence strategy at the University of Illinois.

Chicago having some technical difficulties with his audio.

We'll get that sorted out just as soon as we can.

But for now, Daniel in a thanks very much for being here glad to be here.

So, you know, as we mentioned, McDonald's accused of possibly harming customers using this technology mark up the price is a Big Macs fries.

All the staples.

You know where the plaintiffs need to demonstrate here to prove that the companies violating antitrust law?

Well, generally speaking just brought in broad strokes.

What we're looking for and I anti-trust violations.

Competitors agreeing on prices, right?

And then.

>> If they're sharing of nonpublic current information about costs and prices and then you can now situations where there could be a 3rd party been spoke sort of situation where there's information shared that 3rd party in the 3rd party is suggesting prices.

Now, interestingly enough, there is some case law that to suggest center in a franchise or franchisee relationship, the franchise art can suggest prices and if the the franchise, these are not going along with the pricing that the franchise are can refuse to do business with them now.

And in that situation, what the plaintiffs are alleging is that McDonald's was taking a proprietary information that these franchisees are competitors and then making pricing suggestions, which were more than a suggestion, really a requirement that they had to fallen line.

Interesting.

Okay.

So lot of nuance here.

I mean, you know, obviously I think this is getting attention.

>> Because of the fact that it's an AI power tool that's very much top of mind for folks.

But how is AI powered pricing?

You know, different from a company using more traditional methods, like, you know, sales data, economic models.

Yeah, well, I think there's a lot of similarities in the law applies in very similar ways actually into the space.

But what has really changed is in about it.

>> 10 years ago, the pricing was more general from market.

But now in the McDonald's lawsuit, it's alleged that the pricing is are our suggestions for specific stores, right?

So it's very granular.

These AI tools are looking at massive amounts of data in the past prices.

Just since you had a data scientist kind of crafting formula to figure out the price got to now used.

Huge amounts of data can updated instantly.

And so it's one of the concerns here is that this can be all go over into the space of even suggesting individual pricing, although that's not what is at issue in this case.

Individual pricing like per consumer for exactly.

Yes, interesting.

Yeah.

I mean, would imagine sort touched on this, that it can be kind of an instantaneous thing that that.

>> This can just operate a speed that a data scientist or even a team of data scientists couldn't possibly Right.

And then there's some opacity there.

That's another concern.

And so in this whole anti-trust space, one of the concerns is you have to show agreement between the parties right or at least be able to infer Ning agreement.

But if the parties are using algorithms and the algorithms and up engaging in collusive behavior without the parties agreeing, how does that work under the law?

That's one of the concerns here.

One, especially as we've seen AI models, you know, going rogue, you know, filing false police report, you know, doing hacking.

So I guess there is the potential that, you know, these models may be behaving in ways that their creators don't want them to.

Yeah.

And, you know, I'm kind of on the side of the craters have more control kind of some of the narrative around this, but nothing on the individual side.

People are sometimes surprised to hear that that there really aren't express laws against price discrimination.

As long as there's not out there sort of of discrimination that we that is illegal.

So an exam for about 10 years ago as test prep company.

If you logged into the website with a Mac book, you got charged a higher price than a few used like a PC, OK?

And so there's legislation being proposed now that there are concerns that algorithms could be used to discriminate on pricing of for against individuals.

And there's a concern that there won't they do it, upset the competitive balance in the marketplace.

Interesting will.

MacDonald's declined to join us.

But in a statement the company did say these speculative and uninformed claims attempt to recast a standard business practices.

Something controversial.

>> does not set the price of a Big Mac or any other menu item that the use of pricing recommendation, tools and analytics is widespread across industries.

It goes on McDonald's franchisees make their own pricing decisions.

The pricing portal is a tool, not a mandate designed to provide restaurant specific recommendations to help franchisees deliver value for customers and make informed business decisions to that point about this being, you know, kind of a widespread practice.

Do we know how common the use of these sorts of AI tools to set?

Prices incredibly common.

They're everywhere and you can't compete in the marketplace anymore.

If you're not doing something like this.

Now the question here is, is that this cross over into being something that was anti-competitive and the majority of the lawsuit we've seen so far are scenarios where, for example, Real page, you had landlords who are sharing information with a 3rd party about vacancy rates, the rents they were charging and then that 3rd party providing all these landlords information about how to set their rents.

Right.

And so some of that is still playing out.

But you can easily see the concerns there that wait a second.

The markets not operating kind of coordinating with with other parties.

>> This is one of the first, if not the first case.

That is kind of a franchise or right.

We're not talking about Burger King and Wendy's also being involved in this like the real page case.

So it'll be interesting to see how it plays out.

>> Well, you know, even if McDonald's franchisees are generally setting their own prices, do you think it's likely that at least being influenced by this AI tool?

Well, it's no doubt.

I think that they're being influenced by Dan McDonald said as much that.

>> You know, this is the kind of guidance they're giving to their stores to run them.

Profitably.

But it's really up to the stars as what make McDonald's is saying.

And, you know, there's been a lot of focus on it lost or one mile away from the other one might have very different prices for you.

Think about even just here in Chicago when I go into a restaurant Michigan Avenue, I expect to pay a little bit more than if I'm, you know, outside the city in a rural area, right?

So some of this makes sense.

And using algorithms could be very good for efficiency and for the economy.

But there's concerns here.

There's concerns about the ways that they could be used that would harm consumers get if you find a cheap fancy restaurant, going let me know.

Absolutely, you know, is AI becomes, you know, more involved or, you as you already say is it is quite involved in price setting.

What should consumers and regulators and lawmakers be looking out for?

>> Well, it's it's it's really important.

There continues to be competition right in.

And so no, the real page case there's ever been some cases about airlines hotels, setting prices there's been kind of some mixed outcomes in the courts, but at the at the bottom at the bottom.

>> Consumers and policymakers, lawmakers, we need to make sure there's competition ride and all this works out.

If there's there's true competition, the algorithm, kind of a 2 sides of the opacity issue.

It's not really clear what factors are being used to set prices.

And if you get kind of help, but it just says this is acts.

This is what the pressure being.

You're not really sure the factors that are driving at, but at the same time from an anti-trust perspective, you have more data there.

There may be actually more things to point at 2 to prove that there's coordinated behavior, that there's some sort of collusion going on.

That's a really interesting case.

I will be watching to see how it