The Role of Vicious Cycles in the “Unraveling" of Platform Ecosystems

This paper examines how platform ecosystems, despite their potential for self-reinforcing growth through network effects, scale economies, and learning, can enter “vicious cycles” when opportunistic behavior by users or complementors undermines the platform's stability. Building on theories of network effects, ecosystem governance, and collective action, we develop a framework showing how individual self-interest and coordinated collective actions—such as off-platform coordination, legal workarounds, or flexible (generic) asset usage—can slow down a virtuous cycle and occasionally reverse it. We identify key contingencies, including asset perishability, platform liquidity, and flexibility of use, that moderate these outcomes, and demonstrate how partial breakdowns (e.g., fee renegotiations, user exits) can, under the right circumstances, escalate into broader systemic unraveling. By theorizing new mechanisms that link value capture strategies to platform decline, we contribute novel insights to the platform literature and extend existing models of ecosystem failure beyond technological design flaws to include emergent, user-driven dynamics.