Agree, it's a contrived example. The reason Ann can ask for $170k a year is because there are other companies in Silicon Valley that are not distributed compan

Agree, it's a contrived example. The reason Ann can ask for $170k a year is because there are other companies in Silicon Valley that are not distributed companies, and that are competing for her, because they can't hire Sofia's. If this company hires her anyway, despite not getting any benefit from her location, the company is making a stupid decision. They shouldn't hire her, they should hire two Sofia's elsewhere instead. 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't need access to it, don't pay the premium!!