How can we lose the market when we are the market?
Originally Posted by Tiffani Jameson
Allow me to introduce you to the economic concept of "substitution." One good or service can be a substitute for another. Substitutes that are nearly identical are called "close" substitutes. Imagine the market for Coke-a-Cola. If Coke goes up too far on their price, people will buy Dr. Pepper or Pepsi. Likewise, if you consider the market soda pop, it the price of soda pop goes up too high, people will drink water, other sugared drinks, etc.
See generally:
http://en.wikipedia.org/wiki/Substitute_good
Now let's consider the market for prostitution. There are a number of relatively close substitutes. The first is civilian pussy. Wives, significant others, or girls in bars. They may be somewhat inferior goods in some respects -- have to take out the trash, put up with nagging, beg -- but they will do. Other examples of transactions costs would be the trouble, time, and money involved in hustling pussy in a bar. Likewise, transactions costs are not the only problems. Various substituents may have lesser sexual abilities -- they can't suck a golf ball through a garden hose -- but they'll get the job done. More distant substiutes are porn + Rossy Palm, etc.
So there are alternatives to the provider market.
Other factors keep the market in check. Barrier to entry are low. If prices get too high, new entrants will be lured into the the market by the prospects of high monetary rewards. Unlike say, the practice of law, there is not three year education requirement and a three to six year seasoning process. You don't need a great deal of capital to enter the market as you would if you wanted to start up a new automotive manufacturer. You need enough money to rent an apartment, get a few web advertisements, and buy some condoms.
Likewise, the market has pretty close to perfect information. Prices are transparently advertised and the quality of services is openly reviewed. All of those factors, low barriers to entry, near perfect information, close substitution all come together to keep the market very much driven by supply and demand.