From the rules:
Players sharing a space (after the initial peace-time) MUST engage in melee unless there is a zombie present, in which case they may both attack the zombie.
Key word here is "may". You have a choice. When there are only 2 characters left, then there is no longer a choice and the last 2 fight to the death.
In the case where there are 4 players in one space, they can all gang up on 1 player and eliminate one at a time or randomly choose a player to attack. It is entirely up to the players WHO they wish to attack when there are more than 2 in a single square. Whatever happens, only ONE will walk away!