They can, it is called servers, it is phsyically impossible to have a mega server with every player in the game, no game has or will be able to pull it off, because with every single new person in the area, you are multiplying the bandwith needed
it is not 10 people
it is 10 people needing to receive data about the other 9, and send their own data, meaning it is not "10 data packs going out/in" it is 100, and each person increases that multiplicativly.