Agree, it&#x27;s a contrived example.<p>The reason Ann can ask for $170k a year is because there are <i>other</i> companies in Silicon Valley that are <i>not</i> distributed companies, and that are competing for her, because they can&#x27;t hire Sofia&#x27;s.<p>If this company hires her anyway, despite not getting any benefit from her location, the company is making a stupid decision. They shouldn&#x27;t hire her, they should hire two Sofia&#x27;s elsewhere instead.<p>Salaries are both compensation for work performed, but also the cost of accessing certain labour markets. If you want to hire a bus driver in Manhattan, that person is going to cost you a lot more than hiring a busdriver in Hicksville. Not because there is a difference in skill, but because you need to pay a premium to get access to people who can work in Manhattan. Silicon Valley works exactly the same way, you need to pay a premium to access its labour force. And if you don&#x27;t need access to it, don&#x27;t pay the premium!!