It took me a bit of time to understand exactly how much each advertiser is charged so please bare with me as I explain using the above example.

Advertiser X has the highest rank number (Max PPC bid times quality score), so they will get the number one ad position. The rank number helps determine the lowest minimum bid needed to maintain the number one ad position. Just because the Max PPC bid is $.50, doesn’t mean they will spend $.50. To determine the actually CPC for advertiser X, the cost is advertiser’s Y’s rank number (.66) divided by Advertiser X’s quality score (2), to get $.33. You also need to add 1 penny to lock in the spot. This is the cost of advertiser Y to be in advertiser’s X’s position and what the actual CPC for advertiser X is.

Notice also that because X has a higher quality score, they are actually spending less than advertising Y for a higher position. Kind of crazy and confusing, but I hope this helps you out. If anything, it is definitely a guide for me.

FYI:

(Advertiser Y’s Rank Number/Advertiser X’s Rank Number) + 1 Penny = Actual CPC