Someone else alluded to it as well, you could just as easily view pay as a measure of how much it will take to get you to work for them, rather than a measurement of how much value you will provide the company. From that lens, location based pay almost makes sense.

But it's still a stupid and arbitrary mechanism, and if you're negotiating you should treat it that way. It sounds very systematic and regulatory, but it's not. Just ask them for what you think they're willing to pay you, just like any other negotiation.