LucidSW - 6:48 pm on Aug 5, 2012 (gmt 0)
>> From what I understand, Google can position your ad above the ad of others who are bidding more than you if you have a superior Quality Score.
Not quite correct. You achieve a certain position because of the product of your QS and bid, not QS alone. That's the basic formula they have published. Technically, a QS of 7 and bid of $0.10 ranks the same as a QS of 10 and bid $0.07.
What you pay is determined by the ad rank of the ad below you divided by your QS. So raising your bid if you are already in first position, does not raise your cost since, assuming all else remaining equal (which it never does by the way), your cost will be the same. If you are not in first position, raising your bid raises your positioning but now you have changed the parameters. The ad below you is probably not the same and therefore the cost will be different. It may go up or down or stay the same.
As the system is very dynamic (different competition below you, bids can change often, QS changes after each search both for you and the competition), you cannot say to do one thing and expect a certain result every time. The best thing to do is try increasing QS so at least you have the upper hand and somewhat protect yourself against those simply increasing bids.