In this paper a strongly degenerate parabolic equation derived from a density dependent particle flow model is studied. Furthermore, a free boundary problem and its connection to the strongly degenerate parabolic equation is investigated. First, it is shown that the strongly degenerate parabolic equation has a unique global bounded weak solution that converges towards a steady state for large time horizons. Two scenarios might occur: When the average density rho(infinity) is larger than a certain critical density rho(cr), the steady state coincides with rho(infinity) and the convergence rate is exponential in the L-2 norm; while in the opposite case rho(infinity) < rho(cr), the steady state is unknown and the convergence is algebraic in a negative Sobolev seminorm. Further investigations show that for radially symmetric and decreasing initial data, the solution of the strongly degenerate parabolic equation can be constructed by using the solution of a corresponding free boundary problem. Moreover, the global existence of weak solutions to the latter problem is proved. Finally, numerical experiments in two space dimensions are presented, which show that segregation phenomena can appear when the initial average density is smaller than the critical density.