Rethinking ‘thin markets’ in the NDIS: introducing the market capacity framework

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Markets structures are an important instrument in the success of the National Disability Insurance Scheme (NDIS). It is through diverse and robust disability markets that participants can exercise choice and control, thereby delivering on many of the goals of the scheme.

Yet we are seeing markets emerge with insufficient providers or capacity to meet demand and ensure competition takes place. This has led to debates about ‘thin markets’ — a term used in various ways by different stakeholders to describe market deficiencies ranging from low numbers of providers to immature markets to market failure.

To date, concerns over thin markets have been raised by the Joint Standing Committee into NDIS Markets, the Productivity Commission and other high profile reviews. Despite this, we continue to grapple with how to identify thin markets and, once we do, what we should do about them — or how to ‘steward’ them.

At the moment, there is a lack of national or international evidence concerning how effective stewardship of markets should be operated or the types of levers that market stewards can use to address issues of thin markets. There has also been a lack of clarity around ‘thin market’, with the term used to describe a wide variety of market troubles — from no providers to immature markets to markets with only a few providers.

Our research team aims to develop a range of evidence-based interventions that will help markets to function effectively. To do this, we firstly need to define precisely what constitutes a thin market in the context of the NDIS. Much of the existing literature relating to thin markets focuses on private sector markets, which lack some features that make the NDIS different.

Firstly, NDIS markets are quasi-markets that have to carefully balance considerations of efficiency and effectiveness. Secondly, the NDIS is not one market, but a complex system of markets.

We have developed the market capacity framework to support the identification of different types of thin markets within the NDIS. Within this framework, we define two dimensions — sufficiency and diversity — and argue that the interaction of these gives rise to different types of thin markets.

		Market Diversity
		Non-diverse	Diverse
Market Sufficiency	Insufficient	Market failure (A) “There are no providers offering services for me.”	One provider with strong tailoring to client needs (B) “There is just one provider, but they tailor their service to me.”
	Sufficient	Multiple suppliers of standardised services that compete on price (C) “There are lots of providers but they all offer the same thing, they won’t tailor to me.”	Diversified supply (D) “I can choose from a range of providers offering different approaches to the service I need.”

We argue that the Market Capacity Framework reflects a significant departure from the traditional approaches to markets and aims to capture the complexities of developing, evaluating and stewarding public services markets to achieve their stated goals.

The framework introduces a new way of thinking about markets and what we might do differently in market stewardship as a result of adopting this framework, including: opening up the conversation to a broader array of stakeholders; not just focusing on geographical factors; using all available levers; and, drawing on more local knowledge.

The full Market Capacity Report is available here. Based on the Market Capacity Framework, the team has developed a tool for identifying thin markets. The next stage of the research will work market stakeholders to identify effective stewardship options for different types of market problems.

Prepared by the Stewarding Thin Markets Research Team, funded by the linkage grant from the Australian Research Council in partnership with the Department of Social Services and National Disability Services. The team is led by: Associate Professor Gemma Carey. Investigators: Professor Helen Dickinson, Professor Anne Kavanagh, Gordon Duff, Professor David Gilchrist, Professor Satish Chand, Dr Damon Alexander. Research team: Eleanor Malbon, Daniel Reeders. For more information please contact: Gemma Carey.