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This is leading to me bidding £10 per click, to beat another affiliate who is bidding £9, but I'm only paying £0.20 per click in the end (as there's not much competition on that keyword with other advertisers).
i.e. example of bidding war:
Affiliate #1 Max Bid £10; CPC £0.05!
Affiliate #2 Max Bid £9; *not displaying*
Non affiliate #3 Max Bid £0.04
Surely this is ridiculous? The rate we're going, this will keep going until one of us is up to £40 per click (and the other at £39) but still only paying a final CPC of £0.05...
The problem is, one wrong bid by a merchant, or the entrance by an affiliate for another company could end up costing the affiliates some huge $$ if they get price pinned using these techniques.
And not to be really cynical, but since the capitalisation bug means all affiliate ads are still showing, won't the $10 Max CPCs produce an actual CPC of $10 or thereabouts. Again, isn't this what Google wanted?
Surely this is ridiculous?
I don't think so. This is where your ROI should be based on for your selection. You can pay for £0.05 per a click with a new landing URL or £9.01 a click with the merchant landing page! Which one will give your a higher ROI?
Affiliate 1 : $ 10.00
Affiliate 2 : $ 9.50
Affiliate 3 : $ 9.00
Non Affiliate : $0.05
In this situation, Affiliate 1 pays $ 9.51, Affiliate 2, $0.06 and Non Affiliate $.05. This might bring negative ROI to affiliate 1, so he reduces his max CPC to say $9.25, in which case the afiliate 2 has a negative ROI. This reducing then goes till they go below $9.00 when affiliate 3 comes into play. This game will stop only when there is positive ROI, in which case the bids will not be ridiculous.
This kind of Game Theory was my only fun course in college.
Theory being that both of you are at the maximum bid, but your competitor has a better CTR on the ad (probably from before the aff crackdown).
Even if you improve your ad copy it won't make a difference, because your ad will never show, so your CTR can't increase! Kinda screwed up. :-(