Where do contacts get stored if I merge duplicates from different sources?

Once you merge contact across sources, the resulting contact will merge into the default source. However, if the default source is not involved in the merge, it put the result in the source with the most contacts.

Example: You have a contact in your iPhone that is associated with three sources: Gmail, Hotmail, and iCloud. Merging across sources detected the duplicate and merged it into one contact. In this instance, the source of the merged contact will be the primary source only detected by iOS  API’s.