I think you hit the nail on the head regarding your conversion ratio. It doesn't matter if you get twice as many visitors, if you convert 10% of what your competitor does.
Rather than looking at the pay scale, competition bids, etc. I like to use an EPV forumla. First figure your EPV (earnings per visitor). Ex: divide a month's net revenue by the number of uniques you had that month. That will tell you what your EPV is. Then you know what each new visitor is worth, and can bid accordingly. Personally, I don't bid more than 25 % of my EPV, but different situations call for different formulas. Place your bids and wait a week or two, (or a month is better). See if your conversion rate improves (or not), and if your EPV is better or worse. This can help judge the quality of the PPC traffic. The more bids you place and traffic you get, the more sales you will make, raising your tier. Just make sure your conversion rate stays acceptable. If you can pull a better conversion ratio, and keep growing this scheme, after time you should be in the top tier with your competitor, and would be able to outbid them. I know this is somewhat over-simplified, and sounds easy, but I feel it is a workable strategy.
I would look at the competition's site, and see what I could be better at, and take that into consideration when revising and updating the site. In essence, improve your conversion ratio to increase EPV, allowing you to place higher bids.
As far as residual programs, with the ones I have been involved in, residual income is nominal at best. I never take it into consideration because of that.
CJ sets the cookie expire time to 45 days. It used to be longer, but that is what their current terms are.