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This is one of Google Adwords fortes....having money does not make you top, writing good ad copy does...
Their theory is the ad with more clicks makes them more money...
GhostMonkey, I wonder whether people scroll through the results, and not finding anything their eyes wander to the side and your ad at the bottom. Interesting observation, which I'm about to put into practice on a keyword that was 3 months ago empty and since I put an AdWord up it's now busting to the brim with adwords. If I make my bid 1c I'm guaranteed that bottom spot and I'm paying not much for it :)
That means I can set my maximum cost per click to a million dollars, but I'll only pay 1 cent more than the next guy. I'm only in trouble if he bids up to $999,999 just to force me to pay!
The position is something else. I think your average position is determined by how much money you earn Google.
To simplify it a little:
price per click * number of clicks = google revenue
So the ad with the best clickthrough rate will need to pay the lowest price for the top spot because he will earn Google the most revenue other things being equal.
Of course you can take the top spot, but you'll have to raise your bid to make it worth Google's while.