New Zealand switched from a mostly 2 party first past the post system to a proportional multiparty (usually) coalition system about 25 years ago. We would also end up with governments that won the most seats but lost the popular vote.

IMO we have had much better quality governments since from either end of the spectrum. We had a notorious populist authoritarian in the 70s and early 80s, and I don't see those days coming back.

In a "First past the post" electoral system, It's always more advantageous for the 3rd party to merge with the first or second party.

New Zealand changed away from First Past the Post to Mixed Member Proportional in order to fix that

https://en.wikipedia.org/wiki/Mixed-member_proportional_repr...

https://en.wikipedia.org/wiki/Electoral_system_of_New_Zealan...

I'm not sure how you'd implement it, particularly at the senate level.

The current system is game-theory-stable given the conditions of the USA structure of first-past-the-post. You can look at the historical third parties in USA - a third party can form and gain power (with great difficulty) but then it pretty much immediately displaces one of the two parties, so you're back to a two-party system just with different two parties.

> From the perspective of a European outsider, I very much agree. A lot of problems seem to stem from the two party system.

I used to think the same way, but many (most?) countries in Europe end up having coalitions anyway, so you end up really having just two blocks. More parties might give you the option to choose a party that is more after your taste, but in reality you (often) end up with coalitions that take most ideas from the strongest party within the coalition.

I would assume the same thing would happen within the Democratic/Republican Party in the States as well, i.e. a compromise between the left/right wings within these parties based on what is shared by most members(?)

Not really. The blocks change, especially in close elections without true winners. Then negotiations happen and smaller parties often make concessions on the grand scheme of things to get their key issues through.

So, much more compromise than division. This comes back to the voters also. On every divisive topic you have a number of viewpoints instead of two polar opposites.

The issue with that is that you can end up with ineffective 'rainbow coalition' governments. It can also give Independents far too much power since they can threaten to collapse a coalition at any time.