Only speculating here. But I think its a bit more complicated than your bid amount and the ctr. I think the dynamic impact of your ad appearing on the page with regards to how it impacts the performance of other ads also matters.
For instance lets say you bid 1 cent on a keyword and 100% of the people who search for that word click on your ad. Further assume that they never return to that search page for that term. This would seem to define the perfectly relevent ad (and since they dont comeback, pefectly relevent landing page)for that keyword.
But Google will only earn $.01 for each time someone searches for that keyword. Lets then say hypothetically that when your ad is removed completely, people click 20% of the time on a another ad that has a bid of $2 for, and 30% of the time on an ad that someone is bidding $3 for, Google will earn $1.30 on average each that word is searched for. This is clearly better for Google.
So even though yours is the best earning ad for that search term when it runs (in fact the only one earning money at all), Google actually earns more if it doesn't run at all. This is an extreme example intended only to highlight a point.
While historically I believe "adrank" was determined solely by bid x ctr in direct competition with other ads on a page, adjusted for position. Now I believe the algorithm calculates adrank based on some sort of "dynamic value added" concept such as illustrated above. I also think that ads are arranged in order on a page to optimize this "dynamic value added" factor. Theorectically if your ad is so good that it blows away the field, it could end up hurting Googles overall earnings for that search term. I doubt Google likes this.
Its my theory that this "dynamic valued added"concept may be the reason behind why some ads generating very high ctr's become "inactive for search" and get assigned very high minimum clicks.
This theory could also explain why sometimes min. CPC's associated with exact searches are higher than the min. CPC for the the same keywords for broad match. This theory makes more sense to me than assuming somehow the broad match term is more relevent or has less competition. By definition neither of those conditions can be true. But many of us have seen that happen.
It could also explain why an ad that ranked in position #3 for months suddenly can suddenly drop in one day to #14, without any adjustment from the bidder or a drop in recent CTR. This explanation seems more likely than believing 11 new bidders moved in or increased their bids.
Like I said , just speculation.
I had a high traffic term on Google that I managed to reduce to 0.03 per click and still be on page 1 (about 4th). suddenly my rank dropped to the second page and I had to increase my max bid to 0.10 to bring it back to page 1 even though my CTR was a healthy 5%. Your explaination seems fairly valid to me.
This drop may have also been due to changes in bid prices during the prime time (6-10pm) for B to C traffic.
