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Quote from cardano docs:

The higher is the stake in a pool, the more rewards will be assigned to its owners.

Doesn't this mean that the bigger the pool is the more profitable it is and therefore it could lead to a small amount of stake pools (why someone would want to join smaller stake pool if it offers smaller profits?).

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This is a complex topic, I'll try to explain it as simply as possible.

There is the so called "Saturation Parameter (K)". K is the desired number of active stake pools. From K the maximum amount of ADA delegated to one single pool is calculated. Once a pool exceeds the maximum amount of ADA, it will offer diminishing rewards. (Source https://cardano.org/stake-pool-operation/)

If there would be exactly K stake pools and all ADA would be delegated. All pools would have the maximum amount of ADA delegated (not too much). Therefore that would be the ideal scenario. In practice, there are more than K stake pools. So the stake pool operators need to try to convince people to delegate to their pool. And you're right, many small pools struggle to get new delegators because people naturally tend to choose a pool that already has more stake delegated.

Recently the minimum fixed fee of stake pools has been decreases from 340 to 170 ADA to make the penalty of staking with a smaller pool less drastic for the delegators. However, this means even less rewards for the pool operators which might not be sustainable for them.

Please also have a look at this related question for more information.

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    Thanks for the related question. I have immediately asked myself about single entity maintaining multiple pools and the related question is very much about it.
    – bridgemnc
    Dec 12, 2023 at 22:19

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