To design a compact erbium-doped fiber laser, a high-concentration erbium-doped fiber (EDF) is needed. However, increasing the erbium ion (Er3+) concentration can reduce the EDF performance via the Er3+-Er3+ interaction. In this Letter, we investigate the Er3+-Er3+ interaction effect by designing a tunable erbium-doped fiber-ring laser (EDFRL). This is the first time (to the best of our knowledge) that someone has considered different numbers of ions per cluster and simulated the EDFRL output power degradation due to ion–ion interaction. If the number of ions in the cluster is increased, the lasing output power will decrease accordingly. The most dominant effect is seen in the 1530 nm wavelength region, where the EDF shows a higher signal absorption compared to the other wavelength region. Moreover, a comparison has been done for lasing performance analysis with different dopant ion concentrations. The comparison results show that a higher dopant concentration is advantageous for longer-wavelength lasing.