Economies of scope in Shanghai massage parlors

by on May 14, 2014 at 6:37 am in Economics, Uncategorized | Permalink

The same outlets appear to offer both “foot massage” and “the other kind of massage.”  Rather than doing field work, I confirmed my intuition by asking a native of Shanghai, who estimated that in eighty percent of the storefronts both of the two services are for sale.

What economic model could generate this economy of scope?  We don’t for instance see prostitution and Wonder Bread offered together in the same store.  If anything, the presence of the prostitution would create a stigma for customers who wanted Wonder Bread only.  You might, however, see prostitution and cocaine offered together, if there are economies of scope in breaking the law, such as might arise from having a longstanding relationship with the local police.

One option is that men aren’t at first sure which of the two services they want, foot massage or the other massage.  You then attract more customers by offering both and maybe they will buy one and then the other.  At the very least they are more likely to visit the massage parlor in the first place.

A second hypothesis is that the foot massage workers do not mind being affiliated with a house of prostitution or perhaps also do not mind performing acts of prostitution, at least not any more than they mind doing foot massage.  That will limit the costs of this joint supply.  There may then be an economy of scope in recruiting young female workers for both tasks.

Perhaps both factors are at play.

1 Greg G May 14, 2014 at 6:48 am

So then this needs more research?

2 Jason Braswell May 14, 2014 at 7:11 am

Ah, Tyler Cowen is so innocent!

It’s to give guys a good cover story. “Why was I there? Well, my foot was killing me!”

3 Rahul May 14, 2014 at 7:27 am

Yep. Or to answer the cops.

It’s the same reason a True Crypt hidden encrypted drive asks you to also make a non-hidden drive & then fill it with crap. Plausible deniability.

4 dead serious May 14, 2014 at 8:55 am

Nerd alert.

5 Fembit May 14, 2014 at 2:05 pm

The innocence leads to the premise that a handy is prostitution.

My economic question is why, given the pricing, anyone gets 1/2 hour massage ($40) plus handy ($40) instead of 60 minutes $(50) plus Handy ($40)? I think its customer shame, they want to scram.

6 andrew' May 14, 2014 at 7:13 am

“Would you like the foot massage or the half a foot massage?”?

7 dead serious May 14, 2014 at 8:55 am


8 Cloud May 14, 2014 at 7:13 am

I agree that both are at play.

Another info is that they are usually a better massager of “the other kind”, and this give Second Hypothesis more explanatory power~

9 oli May 14, 2014 at 8:32 am

I don’t think there are any efficiency gains, it’s just a more convincing guise. If you set up a bakery in China and then employed a bunch of young, female and attractive workers then any government inspector is going to work out what is going on (especially as the steady stream of customers would never appear to leave the store with any products!). My friend was offered ‘the other type of massage’ when he tried to get a haircut at a salon in China; another way for the owner to disguise a profitable but illegal core business operation.

10 Mark Thorson May 14, 2014 at 10:15 am

The way to solve that problem is to make sure every customer leaves with a couple of free loaves of bread.

There’s a lot of Chinese who have moved into this part of Sillicon Valley, and I see many shops that cater to that community, some of which offer “foot massage”. I didn’t think anything of it, before.

11 Jon May 14, 2014 at 11:15 am

Significantly lower likelihood of them doing that here. Risks exceed rewards, since police are far less likely to be complicit than in China.

In China, some places operate across the street from their local police station, with show-raids conducted once in a while, or if some bureaucrat higher up gets a bug up his ass about enforcement.

Rewards there far exceed risks for this “industry” and the numbers from this market would, if compiled in anything resembling a comprehensive manner, would be beyond staggering.

12 honkie please May 14, 2014 at 11:49 am

Jon, with respect at least to California and Nevada, you are oblivious to reality. White people would have difficulty operating a business like that; the Chinese have no difficulty at all.

13 Anthony May 14, 2014 at 4:30 pm

In the East Bay, places that offer foot massage generally offer non-sexual full-body massage also, but no sexual services. Places that advertise “massage” (without specifying foot massage) with lots of signs in Chinese are sometimes non-sexual, and sometimes offer sexual services also. I suspect that if I could read Chinese, I’d better be able to tell the difference. Massage places run by native English-speakers tend to have very “granola” or health-oriented names if they don’t offer sex.

I’ve almost always gotten a better massage in places that didn’t offer sexual services. Probably because they have to compete on the quality of the massage.

14 Feyi May 14, 2014 at 7:17 am

I found that I couldn’t walk down the street at night while I was in Shanghai last year without being offered the services of prostitutes.
It was laughable if bizzare.

They also seemed to tailor the services to me (I’m black) by offering what they thought a black guy would like (according to them).
Perhaps this was based on their big data or something but thinking about it now in light of this post, it’s interesting because I did not once run into another black person in Shanghai in my 5 days there.

Yet the ‘market’ claimed to be prepared for me.
Perhaps it’s a feature of the Chinese market to want to offer as many products as possible all the time either in reality or by bluffing.

Note that I didn’t even stop to listen to the pimps never mind buying the service they were offering but I could hear them in smattering English saying stuff like ‘this one good for black man’ as they ran after me

15 Rahul May 14, 2014 at 7:50 am

As an aside, how’s the overall experience being black in China? Do you get discriminated against or not really? Am comparatively curious since I’ve heard some interesting tales about being black in India

16 Feyi May 14, 2014 at 2:36 pm

No issues whatsoever.
I left London for China armed with a map of the subway and descriptions of how to get to my hotel from the airport.
I got there in the morning and it wasnt until I got off the Maglev and into the subway during rush hour that I realised I hadnt thought about the fact there were no black people in China.
It was amazing to be honest initially….I am 6 foot 3 so being on a packed train with thousands of Chinese people felt initially uncomfortable.
But a little girl being carried by her parents was pointing at me and they were embarassed and quickly pulled her hands down.

I also got on the bullet train to Beijing and went to Tian’anmen Square and Forbidden City. Anyone not Chinese would stand out in those places as China is full of Chinese people.
But not once did I get anything like over racism or anything of the sort.
Ran into an American black guy at Beijing Station and as you can imagine, we remain friends till today just on that meeting.

17 Curt F. May 14, 2014 at 7:56 am

Perhaps it’s a feature of the Chinese market to want to offer as many products as possible all the time either in reality or by bluffing.

If you’re right, then the same dynamic probably underlies various Chinese chemical suppliers listing for sale some (almost certainly) non-existent supplies of absurdly dangerous chemicals.

18 Doug May 14, 2014 at 8:07 am

Many Chinese chemical manufacturers do a good business by supplying Western distributors with grey-market hallucinogenic or stimulant research chemicals. The markup on these chemicals is far higher than the margins from standard industrial consumers. Yet a chemical supply company that solely listed known drugs (though in most cases technically legal) would probably attract a lot of unwanted attention. So these suppliers will list an endless array of chemicals, most of which have no human use. In reality they have no intention of selling any but a small subset.

19 Rahul May 14, 2014 at 8:11 am

A lot of this is search engine driven. The websites are competing to get inquiries. Often they don’t even know a real supplier / manufacturer till someone asks them.

Having the broadest list of possible names on their site is their strategy to get more google eyeballs.

20 Finch May 14, 2014 at 8:32 am

Isn’t that the 1997 version of SEO?

Does it still work? I’d bet not.

21 Rahul May 14, 2014 at 8:43 am


It’s no longer sufficient but still necessary.

22 Finch May 14, 2014 at 8:49 am

Doesn’t Google detect it and rank you down for it? They’re pretty good about ferreting out ways to game the system.

For example, link rings result in down-ranking.

23 Plamus May 14, 2014 at 7:19 am

What Jason Braswell said – plausible deniability. Not many activities other than massage require the customer to be in some state of undress – hence the “plausible part”. And prostitution is illegal there – hence the need for deniability. It is a distortion of the market by regulation that would not occur had prostitution been legal.

24 dan1111 May 14, 2014 at 7:59 am

“It is a distortion of the market by regulation that would not occur had prostitution been legal.”

Not necessarily. The plausible deniability also exists for non-legal reasons.

25 marc May 15, 2014 at 3:12 am

Frankly, the police don’t care about prostitution. As long as they get a bit of money when they come by to inspect periodically, no one is bothered.

26 dearieme May 14, 2014 at 7:44 am

It’s got something to do with the foot-binding tradition.

27 M May 14, 2014 at 8:15 am

The question is not “why are foot massages and happy endings offered in the same place,” the question is, “Why didn’t Tyler even note the ‘plausible deniability’ answer?”

Two possibilities:

1. This post is a cover. It provides plausible deniability for Tyler, who is doing something illicit in his marriage. He thinks appearing amazingly naive will bolster his defense.

2. This post demonstrates the same basic lack of good sense that made Tyler conclude that, say, Season 1 of the Americans was primarily about Russian mothers.

28 US May 14, 2014 at 9:38 am

You call it lack of good sense or amazing naivety, other people would use different terms (Jason Braswell used the word ‘innocent’).

I read the post before it had any published comments and I briefly thought about it while considering whether or not to comment. I hadn’t considered the plausible deniability option at all, and I’m pretty sure I wouldn’t have thought of it myself even though it actually is a very plausible explanation for the reasons other people in this comment section have provided. I don’t think there’s anything ‘amazing’ about naivety like that; some aspects of human behaviour are much easier for some people to figure out than they are for others.

29 Ricardo May 14, 2014 at 9:50 am

“It provides plausible deniability for Tyler, who is doing something illicit in his marriage.”

Reply #1: Obviously not, since he didn’t have to blog it.

Reply #2: But wait! That just makes the deniability even stronger! That makes Tyler look even more guilty!

Reply #3: But Tyler is a chess master! He would have anticipated reply #2. That makes him look innocent again.

Reply #4: But then surely he would have foreseen reply #3 too!

Reply #5: This entire blog is a social experiment, and we are the mice.

30 Jimmy May 14, 2014 at 11:38 am

#1, no doubt. Only question is whether this is preemptive cover or damage control

31 John Mansfield May 14, 2014 at 8:15 am

Deborah Fallows’ Dreaming in Chinese has a chapter on the many massage shops she visited, but she doesn’t give the least hint about the “other kind” of massage.

32 John Mansfield May 14, 2014 at 8:36 am
33 anon May 14, 2014 at 8:28 am

Does anybody know why “Asian massage parlor” has become the acceptable form of brothel in the US? My understanding is that essentially all Asian massage parlors in the US are brothels (maybe offering limited services). My understanding is also that they operate without a lot of police interference.

So, why Asian? A Chinese friend tell me it’s a culture of entrepreneurship and general comfort with sex for money. But you’d think a group of All-American blondes would make a fortune doing this sort of thing. So what keeps that from happening? Is it just culture? Is there some difference in enforcement? It’s not like there aren’t other immigrant groups that have had historically uneven relationships with the law. Where are the Latino massage parlors?

34 Rahul May 14, 2014 at 8:54 am

Cops do have vice units & periodic stings but in general they’d rather have closed doors prostitution in strip malls than hookers & pimps walking the streets.

So long as these parlors don’t divert police resources & stay low profile they have a decent chance of not getting attention.

35 Brett May 14, 2014 at 3:26 pm

I think it’s the same thing with the Escort Services around here, who aren’t particularly subtle about advertising the “sex” potential with it. The local Chief of Police even outright stated they don’t have the resources to go after escorts over it, and only get involved if they hear reports about child prostitution or abuse.

36 Z May 14, 2014 at 9:16 am

They don’t get left to operate without police interference. Brothels, like all quality of life crimes, are not a big focus of policing. When the neighbors complain, the cops break up the brothel. Strip clubs offer the same services until someone complains or the owner does not pay. Then the cops bust the place and threaten to take away the liquor license. For six month the club is on good behavior and/or paying the right people. Then they go back to offering their full menu of services.

As far as other ethnics getting in on the act, they do just fine. The difference is you feel safe walking into an Asian neighborhood. You stay away from Latino areas and black areas. The strip joints in those areas are running girls and usually drugs. That said, Asians are probably more comfortable with the sex trade than other cultures so you get less of it in Latino areas. In black culture, prostitution is a part of the nightlife so brothels have never been as popular.

37 Jan May 14, 2014 at 9:35 am

Where do you live? What are your data sources for everything you’ve said in your second paragraph?

38 Rahul May 14, 2014 at 9:49 am

I think the Asians succeed because of their ability to offer prostitution without tainting it (as much) with other more unsavory aspects like drugs, violence, robbery, theft, threats etc.

Another is the ready pipeline of hard working, young, cheap, relatively meek girls from the home country.

39 Z May 14, 2014 at 10:00 am

I do think there’s a cultural angle. In black culture, the females are in charge. It is a matriarchal society. While madams have always been a part of the European brothel tradition, not so in black culture. The role of women probably plays a part. On the other hand, the “playa” and the “pimp” have an outsized role in black culture. Iceberg Slim a legend in black culture.

40 Jan May 14, 2014 at 1:00 pm

Yes, Z, please please more lessons about black culture! Oh how I and my minority friends have suffered in the dark so many years. Enlighten us, oh great suburban white guy!

41 Thomas May 15, 2014 at 1:19 am

Jan has black friends and she is really concerned about suggestions of minority crime rates, oh my!

42 Jan May 15, 2014 at 6:30 am

This is awesome:
“As far as other ethnics getting in on the act, they do just fine. The difference is you feel safe walking into an Asian neighborhood. You stay away from Latino areas and black areas. The strip joints in those areas are running girls and usually drugs. “

43 brad May 14, 2014 at 10:24 am

AMPs are mid to low on the prostitution pay / quality of life scale. The women who work there generally don’t speak much English and don’t have immigration papers so they can’t move into better compensated forms of prostitution — escort agencies, independent escorts, club scene half-hooking, and sugar baby arrangements. Those latter groups are filled with all American blonds making a killing. As of course is the respectable way of trading sexual favors for goods and services.

44 Alex' May 14, 2014 at 10:39 am

I’ve been to plenty of Asian massage parlors in the Houston area. I was looking for signs of prostitution, but didn’t really see any. For the most part, most of the people there were just getting foot massages, the walls in the rooms for full body massages weren’t particularly thick and often didn’t even go up to the ceiling. Half of the workers were (middle aged) men and the women weren’t particularly attractive.

45 rick smith May 14, 2014 at 1:37 pm

just google “backpage houston bodyrubs” and go to the places that advertise there.

46 Brett May 14, 2014 at 3:24 pm

That and Escort Services tend to be the usual stomping grounds for sex work. They’re not even subtle about it in the Craigslist and Backpage advertisements I see.

47 Alex' May 14, 2014 at 3:33 pm

I’m not actually looking for brothels. I have it on pretty good authority that stripclubs in Houston double as brothels. Not to mention the actual whorehouses that I drive past every weekend.

I was just pointing out that I don’t think the association between asian massage places and happy endings is as strong in reality as it is in stereotype.

48 Brett May 14, 2014 at 3:24 pm

It could be like all the Indian motel owners, or Pakistani gas station owners – it was a business they could get into as new immigrants and thrive, and succeeding immigrants from the same background saw what they were doing and copied them.

49 Andrew May 14, 2014 at 8:46 am

This is how it’s advertised in the big Macau hotels too, including ones owned by Western companies

50 londenio May 14, 2014 at 9:00 am

We can call it the Generalized Massage Hypothesis. They will touch one of your body parts with one of their body parts. Just pick the combination. Like asking for noodles or rice and then the meat pork, chicken, etc.

51 Rahul May 14, 2014 at 9:04 am

Their typical customer probably orders mixed noodles-rice with pork, shrimp, beef & chicken. 🙂

52 Highgamma May 14, 2014 at 9:04 am

It’s called a “front”.

53 Just Another MR Blogger May 14, 2014 at 9:23 am

In this post, an autist-austrian economist tries to understand a completely foreign culture without actually trying to understand a completely foreign culture.

54 Sansfoy May 14, 2014 at 9:48 am

Also worth noting that the friend assuring him that 80% of foot massage places also offered the other kind is not particularly robust evidence.

55 RM May 14, 2014 at 9:56 am

Foot massage and other massage stimulate the same part of the brain. Wonder bread and other massage stimulate different parts of the brain. It makes sense to buy and sell the former package together and the latter separately. There is a role for neuroeconomics,

56 Rich May 14, 2014 at 9:57 am

I’m voting for Tyler’s hypothesis #1, with a bit of elaboration. You walk into the massage parlor and keep your options open, because you might not know what the masseuse is going to look like, or you might have a bad feeling about the place. If something smells fishy, so to speak, stick to the foot massage.

57 passerby May 14, 2014 at 9:57 am

I assume it’s that many of the same workers who perform both services.

In Beijing, I saw a lot of hair salons open at 2 AM with bored (but not particularly enticingly-clad) employees standing around in windows and doorways.

In other places (Nicaragua, Lhasa) I have happened upon a number of restaurants with velvet-roped staircases, and sometimes no actual food (it is curious what services are and are not available Sunday mornings in Puerto Cabezas). In Lhasa, the waitresses clearly had dual roles; but I’m not sure if this holds in C. America.

Also, apparently in Foshan (Guangdong province), sexual massages are now legal and considered distinct from prostitution:

58 Doug May 14, 2014 at 10:00 am

Small barber shops across China used to be notorious for actually being fronts for other services, not sure if this is still the case. Found this out in my innocence when I tried to get a haircut near Urumqi train station once.

59 dwb May 14, 2014 at 10:04 am

Or, nobody really wants a foot massage, just a good cover story.

60 Widmerpool May 14, 2014 at 8:10 pm

This is the answer. Unlike In Vietnam, Chinese foot massages are so awful no one would want one.

61 William May 14, 2014 at 10:09 am

Maybe things are different in Shanghai, but my casual observation here in Sichuan province is that the “economies of scope” in this case are greatly exaggerated. There are many places that offer massage or hairdressing, and many that offer “massage” or “hairdressing.” And yes, if you walk into one of the “in quotes” places and demand a massage or that they wash your hair, they’ll do it. But come on, they are not really in the massage and hairdressing business, and basically no one goes there to receive those services. And it’s fairly easy to tell the brothels apart from the other businesses, because of the lighting and how the employees dress.

One thing I *am* unclear on is how many of the 成人用品 (adult products) shops are actually brothels.

62 Donald Pretari May 14, 2014 at 11:17 am

This is off-topic, but when I was a kid during the Vietnam War, my stepfather worked on an army base. Along the highway leading up to the base were dozens of massage parlors. I remember asking my parents numerous times why soldiers so needed massages. I never got a good answer.

63 Massimo May 14, 2014 at 11:51 am

As others have said, it’s a “front” and creates “plausible deniability”. I see these spots advertised on highway billboards and in suburban strip malls and intentionally blend in to the background for people who aren’t looking for them, which is important. Why not Wonder Bread? People don’t buy Wonder Bread in private rooms and the customers of massage parlors don’t walk out with bags of groceries and it wouldn’t provide plausible deniability at all. Tyler shouldn’t have needed to ask this.

The bigger question is why does the word “parlor” suggest prostitution? Salon, lounge, and mezzanine all mean the same thing as parlor, but “massage salon” or “massage lounge” don’t imply prostitution at all like “massage parlor” does.

64 gregorsam May 14, 2014 at 11:54 am

And the descent of Economics into a parody of itself continues unabated.

65 Virginia Postrel May 14, 2014 at 12:29 pm

There is actually an institutional explanation. Under Maoist central planning, massage was an occupation reserved for the blind, but foot (and head) massage was exempted. The two then developed as separate occupations. They have come back together in recent years, but that’s why you find “foot massage” places all over L.A. that in fact offer a combination.

66 Virginia Postrel May 14, 2014 at 12:33 pm

None of this has to do with prostitution, but the entire regulatory apparatus around massage in the U.S. is justified because of that association, as is the massage profession’s insistence that its services are health-oriented. When I wrote about the subject some years ago, a trade association rep was mightily upset that I even brought up prostitution. My article: His letter (which completely misstates the relation I describe):

67 Rahul May 14, 2014 at 1:24 pm

What’s your opinion about chiropractors?

68 dbg May 14, 2014 at 1:38 pm

perhaps we should consider that a foot massage and a hand job are not fundamentally different from the point of view of the worker. does a massage parlor worker consider herself to be a prostitute, even if she gives the occasional hand job? probably not. do massage parlor customers perceive themselves as soliciting a prostitute if they get a handjob? probably not.

the sexual prudeness of American culture is showing here. a hand job at a massage parlor has much more in common with physical therapy than it does with prostitution. genitals are just body parts.

69 Fembit May 14, 2014 at 2:11 pm

Exactly. Neither involves kisses and snuggles

70 roadrunner May 14, 2014 at 2:39 pm

I think this is all about explaining next months Amex bill

71 albatross May 14, 2014 at 6:23 pm


72 carlospln May 14, 2014 at 8:07 pm

“What’s this bill for ‘Happy Ending’? 😉

73 Brett May 14, 2014 at 3:28 pm

I think it’s because in a legalized environment, those services could easily blend together. It’s not a huge stretch to go from massaging a naked person’s back and legs to massaging their groin and genitals.

74 Satish May 14, 2014 at 10:11 pm

Toronto, offers a plausible example of a similar market place. Massage Parlors (as opposed to Day Spa – which is how the therapeutic places signal their massage offerings) are legal and regulated by the city. They hand out what are called “body rub” licenses. But since licenses are limited (based on zoning restrictions, the local politician’s preferences and what not) most asian parlors which cannot get the license generally advertise themselves as foot/chair/neck massage type places. But most people know the ‘extra’ services that are offered.

75 marc May 15, 2014 at 2:20 am

I think your 80% is off the scale high, (with the exception those areas of town where your likely to get offers of “beautiful women” on the street). Massage is offered all over the place from the high priced hotels to very neighborhood places — and actually the local clients are mostly women, not men…..Still you should collect your own independent statistics…

76 mkt May 15, 2014 at 2:55 am

Although plausible deniability is a factor, I think there are other factors at work. After all, a business could advertise itself as offering scientology personality tests or tarot card reading or psychological counseling and get the same foot traffic and deniability.

I think a version of Tyler’s option 1 is also at work. A more clearcut example than massage parlors is live theater. In places as far apart as Elizabethan England and Japan under the shogunate, actors (or really I mean actresses) were regarded as potential prostitutes and women were prohibited from acting. For a long time I wondered why — I know several actors and actresses and though perhaps a little more creative and outlandish than most of the rest of us, they didn’t seem particularly inclined to prostitution. Does watching _MacBeth_ cause the male theatergoer to want to go backstage for a happy ending rather than a tragic one?

But watching a travel documentary which included some clips from Copenhagen’s red light district, with female performers writhing in the windows, made me realize what the connection was. Sure, a performance of Shakespeare might not get the audience in a randy mood. But entirely different is a performance of the Elizabethan equivalent of “Deep Throat” or even just a racy R-rated show (and selling pornography may very well be the world’s second oldest profession) — not only does the producer get to make bucks peddling the sex show, the customers’ demand for certain other services will be reaching a … peak, if not climax. And if the star of the show happens to be receiving visitors in the back of the wagon afterwards — entrepeneurs must have been re-inventing this line of business for millennia, with the attendant besmirched reputations of theatrical performers.

Foot massages of course are not the same as watching a suggestive live performance. But they’re a lot closer to that than scientology tests or tarot cards are.

77 The Butter May 15, 2014 at 3:56 am

In most of East Asia you actually have to pay MORE to have foot massage done in a “clean” joint, suggesting economies of scope.

78 andao May 15, 2014 at 6:50 am

As someone who has lived here for a while, i think you’re over estimating the stigma of prostitution. There are plenty of bars or karaoke clubs where you can order a special service, but you certainly don’t have to if you don’t want.

Would a customer pay more for a foot massage in a spa that was explicitly prostitute free? Maybe in the US, but probably not in China. It’s not that big of a deal.

79 AL May 16, 2014 at 3:01 am

I’d suggest a combination of Tyler’s hypothesis 2 with an “implausible deniability” story. Unlike what the comments suggested, the implausibility is seen from the masseuse’s (rather than the customers’) point of view. Given that (a) massages are performed in a very intimate environment, and (b) men who receive such a massage in such an environment are likely to demand more than a simple massage, attractive masseuses cannot credibly claim that they give massages without performing sexual acts altogether. Thus, only women who don’t mind the stigma of prostitution will be willing to offer professional massages, which means that for these women, the marginal cost of prostitution is very low. A piece of evidence in favor of this story would be to find that places that offer nonsexual massages only are attended by unattractive women.

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