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In this paper, we clarify the physical mechanism for the phenomenon of negative output differential resistance (NDR) in short-channel graphene FETs through nonequilibrium Green's function simulations and a simpler semianalytical ballistic model that captures the essential physics. This NDR phenomenon is due to a transport mode bottleneck effect induced by the graphene Dirac point in the different device regions, including the contacts. NDR is found to occur only when the gate biasing produces an n-p-n or p-n-p polarity configuration along the channel, for both positive and negative drain-source voltage sweep. In addition, we also explore the impact on the NDR effect of contact-induced energy broadening in the source and drain regions and a finite contact resistance.