Ad Rank

Many people assume the highest bidder gets the top ad slot. Not quite. Google computes an Ad Rank for each competing ad in each auction. Google's help lists the factors: the bid, the quality of the ad and landing page, the Ad Rank thresholds (minimum standards an ad must meet to show at all), the competitiveness of the auction, the context of the search (terms, location, device, time) and the expected impact of ad assets such as extra links.

So a relevant ad with a modest bid can outrank a poor ad with a high bid, and an ad below the threshold is not shown even if nobody else is bidding.

For search arbitrage this explains several everyday observations. Thresholds are one reason a feed may return few or no ads for a query, lowering coverage and ad depth. Context is part of the calculation, so the same keyword can produce different ads and prices on a partner site, in a different country or on a different device. And what the advertiser actually pays, which sets the publisher's RPC, comes out of this ranking, not from the Maximum CPC bid alone.

An example

For example, advertiser A bids $4 with weak relevance and advertiser B bids $2.50 with an excellent ad and page. B can rank above A, and B's click costs less than $2.50.