Optimal distinctiveness equilibrium fails because popular groups attract overpopulation and destroy competitors.

Evidence

However, this ideal split might be difficult to achieve for a variety of reasons. First, in the real world, when a popular commodity exists, there can often be an overabundance of interest. For example, when a new checkout lane opens up at a grocery store, for a short while it has the shortest line at the store. However, as people standing in line at other lanes switch to the newly opened lane, it quickly develops a line just as long as the other lanes until all the lines are of roughly equal length. Although all individuals at the store seek the shortest line, a comparatively short line does not exist for very long. Second, through simple random fluctuations, frontrunners can emerge early in a contest leading to the demise of other contestants. In social groups, groups that start off closest to an optimally distinct size may become overwhelmingly popular such that the less popular groups shrink over time until they reach the point of nonexistence, ironically leading to groups at the end that fail to be optimal. — Roderick M. Kramer, Geoffrey J. Leonardelli, Robert W. Livingston, Social Cognition, Social Identity, and…, 836

Categorization

• XREF: Connects to the law-merchant work on runaway effects and the checkout-line example mirroring congestion externalities.
• SEED: Angle: why social aliveness-seeking systems naturally collapse toward monotony — the optimal-distinctiveness paradox as a general social dynamic.