In a normal roto league, if a team dumps, it does not necessarily change the chances of other teams winning the league--in fact it should equally increase it for everyone, with some exceptions based on where certain teams are in category rankings. Everyone has an equal shot at trading with the 'dumping' owner, and there are no direct implications on competition. In the end, assuming everyone makes a trade with a dumping owner, competitive balance should remain the same, while the absolute quality of each of the competing teams should increase thanks to the raiding of the dumped players.
But as I said above, in a Head-to-Head competition, owners that give up on the season and make trades can have externalities involved. Wikipedia describes what an externality is much better than I:
In economics, an externality or spillover of an economic transaction is an impact on a party that is not directly involved in the transaction. In such a case, prices do not reflect the full costs or benefits in production or consumption of a product or service. A positive impact is called an external benefit, while a negative impact is called an external cost. Producers and consumers in a market may either not bear all of the costs or not reap all of the benefits of the economic activity. For example, manufacturing that causes air pollution imposes costs on the whole society, while fire-proofing a home improves the fire safety of neighbors. Standard economic
theory states that any voluntary exchange is mutually beneficial to both parties
involved in the trade. This is because if either the buyer or the seller would not benefit from the trade, they would refuse it. However, an exchange can cause additional effects on third parties. From the perspective of those affected, these effects may be negative (pollution from a factory), or positive (honey bees that pollinate the garden).
That's a pretty lengthy definition. You may be asking yourself, "So what?" Well the problem lies in the Head-to-Head competition. Because teams often wait until more than half the season is completed to decide to rebuild or continue to compete, the rest-of-season schedules are unbalanced. This results in some teams having the advantage of playing a rebuilding team late in the year, while others have to continue to play stiff competition. The externality here occurs when Team X plays Rebuilding Team, and the game results in 14 wins, instead of the 9 or 10 that would have resulted for Team X had Rebuilding Team decided not to punt the season.
In my 20 team league with 8x8 categories, our trade deadline occurs after the 6th or 7th session. There are 4 divisions (5 teams each), and each team plays the other team in its division twice, along with 2 non-divisional games. If a team, or 2 teams, in a single division decides to punt the season, that boosts the chances of teams in that division significantly more than any other team(s).
This has been a downfall of our league in recent years, and we have instituted rules in which to attenuate the problem. There are a number of options to do this including changing the trade deadline date to an earlier time to make it more difficult for owners to guage if they have a chance, restricting minor league and keeper rules more stringently, allowing for trade voting for vetos (I do not like this idea), having a 'consolation tournament', among others. Eriq Gardner of THT and FBJ plays in the league, and describes the Consolation Tournament in his Hardball Times Fantasy article here: http://www.hardballtimes.com/main/fantasy/article/designing-a-better-league/
I chime in with the first comment (which I will discuss in the following post). It seems like this isn't a problem confined to our 20 team keeper league--though I have yet to find a league that is more affected by the balance change in dumping situations. In the end, we're talking about aligning incentives (as Eriq points out). While we could simply ban trades of this sort from happening in the league, I'm more of a free market person. I really think that the idea of the keeper league is to weight this season's chances with next season's and decide what's best for your investment. I also think this type of transaction mirrors real-life events in Major League Baseball. Cliff Lee for who? So the idea here is not to keep people from rebuilding (that's the most interesting aspect of a keeper league), but to limit its effect or the severity of the balance change when the deadline passes.
In the following post, I will explain why this happens in the broad fantasy model, and how we may solve the problem (at least the model I think would best solve it).