Stewarding Thin Markets: Improving Public Sector Market Effectiveness

Governments around the world are grappling with issues involved in stewarding public sector service markets to ensure they meet policy objectives. But without understanding the full range of ‘levers’ (for examples, actions and interventions) available to steward markets, governments risk developing ‘thin markets’ that fail to meet people’s needs, and may even make things worse.  

Thin markets emerge when there are not enough providers in a public or private market for it to function as intended. Thin markets have both a low number of buyers and a low number of sellers, and may also suffer from price volatility – a combination of characteristics that leads to market inefficiencies. As markets are increasingly used to deliver public services, thin markets have become a major challenge for governments. In the public sector value for money and equity are crucial. In addition to inefficiencies, thin markets present issues of inequity.  

This goes against key principles of government service delivery, which are ‘effectiveness, efficiency and equity’. Current research focuses on how public service markets should function in an ideal scenario, but such theories assume ‘free markets’ with little or no government intervention. However, public service markets are not free markets – they rely on government funding and do not use traditional supply and demand mechanisms. This means that governments do not currently have a way to identify thin markets within a public service market context, severely limiting their ability to address them. 

 This research project will develop innovative methods to identify and assist in addressing thin markets in social service settings using Australian National Disability Insurance Scheme (NDIS) as a critical case study. Thin markets and market gaps (for example, where no providers exist in a specific area) in the NDIS and similar schemes could undermine the goals of the scheme and the principles of public sector service delivery, including effectiveness, efficiency and equity. 

By studying the NDIS, this project will answer the research question: What levers can governments use to steward emerging public service markets? 

Objective 1: Use and further develop innovative network analysis techniques to identify thin markets or market gaps 

Objective 2: Build knowledge of the ways in which informal and formal governance levers influence market emergence and development 

Objective 3: Identify potential levers for the stewardship of highly complex and diverse public service markets 

Department of Social Services 

National Disability Services 

Australian Research Council (ARC) 

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