With regard to loot, players can obtain loot either through trading Legion points or through the lotting system. If a lot of monsters are defeated by many players, there will be more loot dropped, which means there are more chances to obtain loot.
Even if a player fails to obtain an item through lotting, that player accumulates Legion points with each run, which will allow the player to possibly trade for the item. With more players, there certainly is more competition when lotting on an item, but considering that there are more loot items dropped, the probability of obtaining an item will not drop as severely as you mentioned.