Contraction is when two letters merge into a new combination; (BBG 17.5) For consonants, consult the square of stops. See a comprehensive chart of vowel contractions in MBG 2.1.
The rules for contracting an ε are:
ε + α = η
ε + ε = ει
ε + ει = ει
ε + ο = ου
ε + ου = ου
ε + ω = ω
The rules for contracting an α are:
α + ε = ᾱ
α + ει = ᾳ
α + ο = ω
α + ου = ω
α + ω = ω
The rules for contracting an ο are:
ο + ει = οι
ο + ω = ω
ο + ε = ου
ο + ο = ου
ο + ου = ου
cf. circumflex