CTR affects Position - that's an invariable part of the equation. Position is given by ranking ads by Bid x CTR.
But also empirically everyone knows that Position effects CTR; the higher you rank the more clicks you get.
SO CTR effects Position, and Position effects CTR.
Question: Can this cause a virtous upwards spiral (or a vicious downwards circle)? Will ads that bid high get an high position, thereby getting high CTR, thereby being able to maintain their position without the high bids that originally got them there?
I hear people saying both yes and no.
Andrew Goodman in his (not that good) "21 ways to maximise your profits using Google Adwords select" report boldy and clearly says yes this is the case, and recommends bidding high at the beginning for this reason. I've seen quite a few posters here at WebmasterWorld say the same thing, including someone in a recent post which was what set me to typing away here.
BUT, in the Member's pages at SearchEngineWatch (Up Close with Google AdWords", Danny Sullivan quotes Google spokesperson David Krane back in the early days of adwords select who clearly says that Google is cleverer than this. To paraphrase Krane:
If on average position #1 gets 2% CTR and position #3 gets 1% CTR, then we know that a specific Ad in position #1 that gets 1.5% CTR is a worse ad (has a worse 'underlying CTR') than an ad in position #3 that gets 1% CTR. The #1 ad is doing worse than average for its position, whereas the #3 ad is doing better than average. Krane says this applies for both ranking and threshold purposes.
What do the sages here think? Has anyone else asked Google?