What is smart pricing in search ads?
Smart pricing is Google's practice of automatically reducing what an advertiser pays for a click from a partner site when that site's clicks are less likely to lead to a sale or sign-up. For the publisher it shows up as lower revenue per click. It is the main way poor traffic quality is priced in without any formal penalty.
Smart pricing protects the advertiser: a click worth half as much should cost half as much. The adjustment is driven by conversion data across advertisers, which publishers never see.
In arbitrage it explains a common puzzle. Two publishers send the same keyword to the same feed and earn very different RPC. The one whose visitors go on to buy is paid closer to the full bid. The one whose visitors bounce is discounted. It also explains why adding cheap, low-intent traffic can lower earnings on all traffic through the same account or channel. The only lever a publisher has is the quality and intent of the visitors it sends.