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The psychodynamics of inter-group conflict between similar neighbouring groups is frequently understood as a “narcissism of minor differences” (Freud, 1918a, 1921c, 1930a). Despite coining the phrase, Freud (1930a) states that the phrase does not do much to explain the phenomenon. This article examines the mechanisms underlying the “narcissism of minor differences” and compares Freud's model with Bion's (1961) model of group schism. Freud's model locates hostility in narcissistic mechanisms that defend against feelings of similarity and strangeness. Bion's model, by contrast, conceptualises inter-group conflict as the breakdown of the developmental conflict which reveals dialectically opposed positions—what Bion calls “primitive” and “sophisticated”. These positions function as large-scale social defences. In his framework, hostility arises not primarily from narcissism, but from a group's failure to contain the developmental conflict. The lack of containment represents a failed opportunity for the pleasurable expansion of intuitive capacity and the creation of the “new idea” for the group mind. A similar unconscious schismatic phenomenon occurs within the romantic or married couple. The comparison suggests that while Freud's model captures some of the descriptive features of inter-group hostility, Bion's framework provides a more generative basis for theorising the unconscious functions of group conflict.