Increase in supply of Russian sex workers and prices go up?

veblen GoodI found this article from Michael Cameron’s blog “Sex, Drugs and Economics” – Michael is a senior lecturer in the Department of Economics at the University of Waikato, Hamilton. New Zealand. He spotted an report from The Moscow Times that said:

In the Urals, sex workers have raised prices by between 50 and 100 percent, said Wednesday, citing unnamed clients of prostitutes.

He made a very good point in that the paper talked of an increase in sex tariff inflation with the influx of sex workers fleeing war-torn Ukraine. The new competition is forcing local sex workers to hike their rates in order to pay their bills, the report said.

If this is the case the demand curve for sex services must be upward sloping – there is an increase in the supply of sex workers but prices are going up? Normally with increased competition with more supply prices drop. These goods/services that have an upward sloping demand curve and are know as Veblen goods after economist and sociologist Thorstein Veblen who wrote about conspicuous consumption in his 1899 book The Theory of the Leisure Class. It is a term used to describe the lavish spending on goods and services acquired mainly for the purpose of displaying income or wealth. In the mind of a conspicuous consumer, such display serves as a means of attaining or maintaining social status.

That doesn’t seem a particularly likely scenario for sex services. Neither are sex services consistent with other types of goods that have upward-sloping demand (Giffen goods, goods with network effects, goods with bandwagon effects).

More likely, and the Moscow Times have demonstrated temporary economic illiteracy. Increased supply doesn’t increase prices. On the other hand, inflation does increase prices and that is what is being observed.


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