The study of regular sound change reveals numerous types of exceptionality. The type studied here has the profile of regular sound change, but appears to be inhibited where homophony would result. The most widely cited cases of this phenomenon are reviewed and new cases presented. If sound change can be inhibited by impending homophony, how is this to be represented and understood? Here we offer a model of variation-based sound change where category evolution incorporates lexical competition. Lexical Character Displacement predicts accentuation of differences among similar words when syntagmatic disambiguation is limited. In the cases under discussion, this accentuation inhibits merger. However, as we show, the same principle can inhibit sound change altogether, or give rise to extreme phonological contrasts under similar conditions.