Price Setting in Online Prostitution Market

Abstract

Due to obvious difficulties with collecting data, existing literature on economic analysis of prostitution seriously lacks empirical evidence. While behavior of an individual prostitute as an economic agent has been modeled in a number of papers, those models have rarely been supported by quantitative evaluations. The present article follows contemporary approaches to economic analysis of prostitution and at the same time makes use of the benefits that the Internet has brought to this type of service. In comparison to the recent past, modern individual prostitutes have much more opportunities to contact their clients online without the help of pimps or other intermediaries. Thus, the roles of market participants, the structure of risks, as well as price-setting mechanisms have significantly changed. In order to evaluate factors affecting prices set by Moscow prostitutes offering their services online, the article employs a hedonic pricing method. The authors show that the key factors are the location, where services are provided, and the quality of a profile picture as a proxy for costs incurred by a prostitute in order to raise the attractiveness of her website profile and her personal appeal. These results may be useful for further analysis of how prices and revenues in the prostitution market are related to legal markets and could be a part of a potential government policy regarding prostitution.