In other words, excessive participation and competition can result in a negative outcome for everyone without collusion and segmentation of behavior.
Applying this principle to economics, it makes sense in an oligopolistic market where only a few sellers dominate to engage in some collusion, or, if this is not legally possible, for each to concentrate on a specific market segment, rather than waste too many resources, target the entire market or worse, engage in a competitive price war for the same market segment as a competitor in a way that that drives prices down for all the sellers in the market. This type of collusion or segmentation becomes more difficult as more entities enter the market.
When a market is no longer an oligopoly, sellers lose out. For example if another group of male students enter the bar and target the blonde, brunette, and redhead in a way that interferes with the agreement of the oligopoly of male graduate students, the original group of students might rationalize that loss is possible with many of the outcomes so why not go for the best looking girl? Thus, this illustrates why oligopoly is a more desirable arrangement for sellers, if not for buyers, as it reduces buyer choice, reduces the likelihood of sellers losing out, increases unpredictability, reduces the likelihood of sellers losing out, increases unpredictability, and also keeps prices higher..