From Shallow to Deep: Understanding Market Functionality

In development practice, we often talk about “leveraging markets and value systems” to achieve development outcomes. But knowing where the market currently stands is just as critical. It shapes how we design interventions, target investments, and define what “systemic change” really means in our theory of change.

To do it better, we need to ask: Why do some markets take off, buzzing with activity, innovation, and opportunity, while others remain stuck in cycles of dependency? And how do we know whether a market is truly functional, or just busy on the surface?

To answer this, let’s step back and look at markets not just as places of exchange, but as systems of relationships, incentives, and transactions that vary widely in maturity and depth.

Seeing Markets as Systems

Markets aren't just places where buyers and sellers meet. They’re living systems of relationships and transactions, made up of trust, information, and incentives that either work together or pull apart.

When these relationships function well, markets grow organically. When they don’t, no amount of subsidies or infrastructure will make them thrive.

That’s where make sense of what’s really happening in a given market matters.

The Market Depth and Functionality Mapping Framework

Every market, from dairy to digital, can be understood through two basic lenses:

• Market Participants – how many and how diverse the actors are.

• Market Transactions – how frequently and reliably they exchange goods, services, and information.

Plot these dimensions together, and you can see how functional a market truly is. Using these dimension, we introduce you to the Market Depth and Functionality Mapping Framework, which offers a simple yet powerful way to visualize how markets operate and evolve. It looks at markets along two dimensions:

1. Market Participants – how many and how diverse the actors are (from producers to traders, processors, input dealers, and service providers).

2. Market Transactions – how frequently and efficiently those actors exchange goods, services, and information.

These two dimensions combine to form four distinct archetypes that capture the reality of most markets. The markets can be mapped in the Figure 1 presented below either intuitively, participatory mapping or using specific indicators.

Figure 1: Market Functionality Mapping Matrix

The Four Market Archetypes

The above matrix has four market archetypes briefly described below.

Quadrant	Description	Typical Features
Shallow Market	Few participants and few transactions.	Isolated, thin, and high-risk systems; often dependent on public supply or subsidies.
Concentrated Market	Few participants but frequent transactions among them.	Stable but narrow; dominated by a few dealers or aggregators with strong relationships but limited inclusivity.
Fragmented Market	Many participants and frequent transactions.	Broad but disconnected; coordination failures, weak trust, and missing linkages prevent volume growth.
Deep Market		Competitive, inclusive, transparent, and resilient; supported by strong institutions and feedback loops.

These categories aren’t rigid boxes, they describe stages of market maturity. Markets evolve along this continuum as more actors engage and institutional trust develops.

Markets as Living Systems

A functional market is not just about prices or infrastructure. It’s a living system that changes as incentives, norms, and relationships evolve.

Transition	What Changes	Example
Shallow → Fragmented	More participants enter, but trade remains sporadic.	New suppliers or buyers appear, but no coordination yet.
Fragmented → Deep	Coordination, trust, and supporting institutions strengthen.	Producer groups link directly with reliable traders.
Concentrated → Deep	Market power opens up to competition.	Entry of new firms and better information transparency.

Understanding where a market sits on this spectrum helps identify what kind of intervention it actually needs, not just how to grow it, but how to make it function.

How It Works: A Use Case in Agricultural Market Systems

Let’s apply this framework to a typical agricultural sector where farmers, input dealers, traders, and buyers interact in uneven and evolving ways.

1. Shallow Market – The Missing Middle

In remote farming regions, input and output markets often remain shallow: few dealers, limited stock, and sporadic supply. Farmers rely on government or NGO programs, and private investment is almost nonexistent.

Intervention focus: Create entry points, demonstration effects, early business models, and logistical support that reduce transaction costs and show that rural trade can be viable.

2. Concentrated Market – Stable but Exclusive

As some dealers or aggregators establish dominance, transactions become more regular — but controlled by a few.These markets may function smoothly for loyal customers yet exclude newcomers or smaller players.

Intervention focus: Broaden participation. Strengthen transparency and competition, encourage new entrants, and build collective bargaining mechanisms for producers.

3. Fragmented Market – Potential without Coordination

Here, many farmers and traders exist, but few deals happen.Information asymmetry, weak trust, and risk aversion keep activity low. The market has latent potential, but the system lacks glue.

Intervention focus: Facilitate coordination, introduce collective marketing, information platforms, or embedded services that build confidence and repeat trade.

4. Deep Market – Inclusive and Resilient

At this stage, multiple actors interact through consistent and transparent exchanges. Farmers access inputs, finance, and information; traders compete on quality and price; institutions set clear rules.The system becomes self-reinforcing and adaptive — a living ecosystem, not a project output.

Intervention focus: Sustain and innovate, strengthen standards, invest in climate resilience, and ensure inclusion for women and youth.

Market Evolution: From Thin to Deep

Markets are dynamic. They evolve through shifts in participation, trust, and structure.

Transition	What Changes	Example
Shallow → Fragmented	Entry of new actors widens participation.	Small input dealers begin to emerge.
Fragmented → Deep	Coordination and institutional trust grow.	Farmer cooperatives connect directly with regional wholesalers.
Concentrated → Deep	Monopoly structures open up; competition increases.	Policies and new entrants balance the field.
Shallow → Concentrated	Early relational trade forms among few trusted actors.	A single dealer becomes the go-to supplier.

Each transition reflects both structural shifts (incentives, access, and policy) and behavioral change (trust, norms, and risk perception).

Why It Matters

Mapping markets with this framework helps practitioners move beyond static value chain maps. It shifts focus from “who exists” to “how they interact” and from “what is missing” to “what needs to change.”

This makes it an invaluable tool for:

• Market systems facilitators designing adaptive interventions.

• Policy analysts evaluate where regulation or incentives are needed.

• Impact investors assessing market maturity and risk.

Closing Thought

Markets don’t become functional through projects or policies alone.They deepen when trust, information, and incentives align, when actors transact not just once, but again and again.

Making sense of market functionality means seeing markets as living systems, learning where they’re fragile, where they’re stuck, and where they’re finally beginning to breathe.

Sounds Familiar?

Do you work in market systems, value chain development, or enterprise facilitation? If this approach resonates with your experience, we’d love to connect.

We partner with organizations to diagnose market systems, identifying where they’re stuck and how they can evolve.

If you’d like to better understand your market or value chain and make it work more effectively for growth and development outcomes,📩 reach us at partnerships@praxsysassociates.com