We’re heading towards AI prices, where diners can be charged more because algorithms say they can afford it

Wendy’s is an American hamburger chain famous for fare that sounds like a Young Scientist experiment: square beef patties and “Frosty” milkshakes, described by Wikipedia, somewhat less than tantalisingly, as a “soft ice cream mixed with starches”.

It recently became notorious as a pioneer of something else, a phenomenon dubbed “surge dining” following the announcement that it would be using AI and digital menus to adjust its pricing at times of peak demand.

Surge pricing is not a new or even a particularly controversial idea. Uber is credited with inventing it, after it began unapologetically charging customers more for cars booked at busy times. In truth, the hotel industry has been doing this forever. And anyone who has flown Ryanair – or any airline – understands the principle: you’ll pay more if you book late, more to fly on the weekend, more again for a “better” seat. Even your 16-year-old babysitter is familiar with the concept of surge pricing, as any parent who ever made plans to go out on New Year’s Eve can likely attest.

So you might imagine that a restaurant chain deciding to embrace surge dining wouldn’t be terribly controversial. For an industry struggling with tighter margins, rising costs, the 13.5 per cent VAT rate, the prospect of mandatory pension enrolment and planned improvements to sick leave entitlement for workers, it could even be an answer to some of its woes. It doesn’t seem such a leap from cheap early bird, pre-theatre or pricey Valentine’s night menus to charging customers more for a rib-eye eaten on Saturday than the same steak eaten on Tuesday. Diners might even welcome the practice if it meant a better chance of getting a table on a busy night.

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We’re heading towards AI prices, where diners can be charged more because algorithms say they can afford it

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Wendy’s rushed to clarify that, no, it would not be introducing surge pricing. It was only talking about reducing prices at quiet times, a distinction which was a bit like dancing a jig on the head of a skinny fry

Given the reaction to the Wendy’s news, few restaurants will be rushing to find out. The backlash following the company’s announcement that it had invested $20 million in AI systems and would soon start testing “AI-enabled dynamic pricing menu changes and suggestive selling” was instantaneous and apoplectic. There were calls to #boycottwendys and accusations of “price gouging” from US senator Elizabeth Warren. Wendy’s rushed to clarify that, no, it would not be introducing surge pricing. It was only talking about reducing prices at quiet times, a distinction which was a bit like dancing a jig on the head of a skinny fry.

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The backlash really seemed to be about two things. The first was that fast food burgers belong to a special category of items seen as predictably fixed-price, so much so that the Economist created an entire economic metric around the hamburger – its Big Mac index measures whether currencies are set to their “correct level”. If the price of a Big Mac were to fluctuate based on the time or day or even on what an algorithm has determined a particular customer will pay then – not to overstate the Big Mac’s status as a bulwark of reliability in an uncertain world – nothing would make sense any more.

The second part of that statement – the “based on what an algorithm has decided a particular customer will pay” – is where it all gets a bit murky. Few diners would delight at being charged more because an algorithm has looked at their income, search and purchasing history and even their health tracker apps to determine how hungry they might be, and set the price accordingly. If you’ve ever eaten out in Italy in the kind of restaurant where there is no printed menu and prices are never written down, you may have already encountered this kind of “personalised pricing”. You ask for the bill, and a glassy-eyed look comes over your server as they calculate how much they can get away with charging you. Imagine this phenomenon on a global scale, with an algorithm in the role of the waiter, and it’s a lot less charming.

Are you being offered a price based not just on what the bed is worth, but on what the algorithm thinks, based on your search trends and booking history, you will pay?

This scenario is already playing out in other industries. Some accommodation finder platforms use machine learning to, they say, apply discounts to properties at quiet times. If you log on to these same platforms with different accounts from different devices or browsers, you may encounter different prices for the same property. Are you being offered a price based not just on what the bed is worth, but on what the algorithm thinks, based on your search trends and booking history, you will pay? “Everyone knows that companies use our data to target ads and decide which products we see. But the use of that data... to charge each person a different amount based on their calculated willingness to pay – is still taboo,” writes Christopher Beam in an article entitled Welcome to Pricing Hell in the Atlantic.

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He quotes some economics boffins who try to paint it as an essentially charitable practice at heart. “I think we can agree that if personalised pricing worked in a way that people with lower incomes got lower prices, we’d be happy. Or we’d say it’s not evil,” says one, who coincidentally also works for Amazon.

I suspect most of us probably would say it’s evil, but it is what we’ve signed up for. This is where all those cookies, data trackers, discount programmes, surveys and personalised ads we blithely sign up for eventually lead. In the absence of clear, straightforward rules – and there are none; neither personalised pricing nor dynamic pricing is banned under EU law – and a so-far absent willingness to clamp down on Big Tech, there is little to stop that information being used in the other direction. This is the surveillance economy in action. You get the occasional good discount or a free drink on your birthday, but at what price? Only the algorithm can say for sure.