Wordstream have produced a clever little infographic to demonstrate how Google’s AdWords auctions are run. I’ve written about pay per click auctions before but this is a cool little visual explanation which might be of interest to those wondering why they are payiing the cpc’s they pay.
It’s really important to understand that the higher your quality scores, the higher your ads tend to rank (because QS combines with your bid to determine ad position) AND the lower your actual cost per click (because you are dividing the ad rank of the competitor below you by your great QS score!).
Its entirely possible to pay much less than the competitor below you which is what makes this style of auction rather different from the normal highest bidder wins type.