Let's say the typical comp in the Bay Area is $200k/year and the typical comp in Nowhere, OH is $100k/year. The fact that companies continue to pay their bay area employees $200k when cheaper options are available means that either:
1. They are willing to pay a huge premium for geographic proximity to their HQ
2. The average developer in Nowhere, OH is not as good as the average developer in the bay area. Not because Ohioans can't code, but because a large fraction of the ones who can have already moved to the bay area to make twice as much money. The ones that are as good make as much as the ones in the bay area, but most are not and drag the average down.
If 1 were the case, then companies would cut people's pay by half if they moved out of the bay area, or offer half as much money to people working in their satellite offices. But many companies don't, so clearly option 2 is more plausible than option 1.
Again, you are making a lot of unsubstantiated claims here. Also, there are more options than the two you have presented.
The only thing you can definitely say about Bay Area developers vs others is that they’re paid more money - a result of there being companies with more money located there.
Finally, your entire premise is faulty as you perfectly correlate developer quality and compensation.
1. They are willing to pay a huge premium for geographic proximity to their HQ
2. The average developer in Nowhere, OH is not as good as the average developer in the bay area. Not because Ohioans can't code, but because a large fraction of the ones who can have already moved to the bay area to make twice as much money. The ones that are as good make as much as the ones in the bay area, but most are not and drag the average down.
If 1 were the case, then companies would cut people's pay by half if they moved out of the bay area, or offer half as much money to people working in their satellite offices. But many companies don't, so clearly option 2 is more plausible than option 1.