An activity choice approach towards pricing of 1:1 personal services – on the omnipresence of interpersonal utility comparisons

Currently, microeconomic theory is only of very limited use to understand price levels in the service sector. After a brief review of the literature on service pricing, this paper claims that price levels in the service sector are not only dependent on qualification levels, but also on the difference between the levels of non-monetary utility which customers on the one hand and providers on the other experience. An activity choice model shows why the ratio between utility differentials and prices should converge within a service segment. Theoretically, the approach finds a pragmatic alternative to the alleged impossibility of interpersonal utility comparisons in economic mainstream theory. Practically, it is able to explain the high price level for sex services compared with other service segments.