Some insight into the economics of prostitution.

“I only charged $300 when I lived in San Francisco,” Andrea says. Unlike most industries, escorts can charge higher prices when they are in greater supply. This is because price is one of the few metrics sex suppliers can use to convey quality. (In this way it is not unlike the hedge-fund industry.) There are only about 30 VIPs in San Francisco, but nearly 100 in New York, so Andrea can charge more here. The customer demographic is also wealthier, and a higher price deters customers from bargaining, which is considered poor taste.

In any non-competitive industry, setting a price is a supplier's way of communicating value to a customer. When information is imperfect or asymmetrical (ie, when customers don't know enough about a product, or when suppliers are ignorant of their value relative to their competition), prices deviate from their market value and the market becomes riddled with inefficiency. This is why tourists in midtown Manhattan spend too much money on fake antiques, and why my local laundromat will wash and dry my clothing for half the price of rival cleaners across the street.

For a prostitute, the asymmetry is more profound. On the supply side, it is challenging for Andrea to price herself relative to her competition. Despite the publicly available listings of prices, photos and expertise of fellow escorts on Eros, it is impossible to know if these other women provide comparable services. On the demand side customers cannot be certain that the product resembles the advertising. And much of the value is merely hinted at, owing to the illegality of prostitution.

It's also interesting to consider that the prostitutes themselves are probably the biggest winners from our current system of illegality plus lax enforcement. Similarly to marijuana, if prostitution were widely legalized prices would quickly plummet.

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