I don't know what the root of it all is I don't think the size of family does determine the toxicity if it all.
I do know that my parents didn't ever treat us all the same, and so it always felt like they were playing favourites in one way or another, and unfortunately we as kids got wise to that so became very adept at manipulating the situation to suit us, this did involve playing one off against the other.
I do think that these family dynamics carry over into adult life, and are virtually impossible to shake.
Ultimately children don't come with handbooks, and my parents didn't have the tools to deal with such strong personalities, especially as they were raised in a culture where obeying your parents is the golden rule, no questioning no making your own choices.
I would say that generally my relationship with my mum is millions better now, she has changed so much and her behaviours towards us all have changed. I do finally feel like I have a "proper" mum and have that "mum" relationship with her. Things with dad are ok, and with luck things will continue to improve.
One tool I do use (if you can call it that) is that I take anything any of my family says with a pinch of salt, and when I get a phone call saying "so and so is saying or has done x" I would then say "so let me get this clear, you are telling me that x has done/ said x, I'll speak to them about that as it is unfair/ not acceptable" generally if there is a lie or an exaggeration in there, they will back track and say "no, I didn't mean it like that". I guess the lesson is that 9 times out of 10, this is about good old fashioned attention seeking, and the need for drama and the inability to empathise with others, because they can only see the world in relation to themselves.
If I was Freud, I would suggest that they had never got beyond the ego stage of about three, but, and this is the big but, they don't behave in the manner in their careers or with their friends. So that means the delightful behaviour is reserved only for you because they know that only you will tolerate it.
I may understand the reasons why, but am no further along in nipping it in the bud. All I can say is that, I would protect my family especially my children from these behaviours (even if that meant limiting contact) in order that my family didn't become part of this cycle.
Try not to think about it too much, you can drive yourself mad with the whole thing, and the only change I truly think we can make is prevent our own families from becoming part of the dynamic.
Ooh sorry for the essay, hope it makes sense.