LucidSW - 8:15 pm on Sep 8, 2011 (gmt 0)

Since you say both ads show in first position (exactly 1.0? all the time?), it's easy to explain. This supposed that both ads have a better adrank than your next competitor(s). Your QS x bid results in the higher adrank.

However, one must remember that QS is calculated not just for the keyword, where the QS is shown, but the ad-keyword combination. The lower CTR ad MUST have a lower QS, whatever it is, and the cost calculated using it. Since it has a lower QS, your cost is higher.

Let's assume that the next lower competitor is always the same and his bid does not change, say $0.30. If you both have the same QS, they cancel each other and therefore pay his bid, if that is not higher than your own of course. In reality, QS is calculated to many decimal places so having two QS exactly the same is virtually impossible. Now, your better CTR ad would normally have a higher QS thus reducing your costs. In this example, your QS would be 6.7% higher than his (his 7.00 to your 7.47 for example or 9.00 vs 9.60) and that explains the difference.

It seems you have two great ads and your competitors probably have poorer ones probably giving you QS of 10 for both. Would be hard to improve on that almost 25% CTR but if you do, you may be able to shave a few tenths of a cent off that CPC. Can really add up in the long run and stay ahead of competitors. The nice thing when you're in that situation is you can reduce bids and see how a reduced position affects ROI. First place is usually where you want to be but if your conversion rate is the same in second or third and paying a few cents less per click, so much the better.