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The advertisers for one particular keyword outbid eachothers right? they set a maximum price pr click and only if they are the highest bidder they get shown - as long as there are more advertisers than slots in the adsense banner.
So since the banner format ad only shows 2 ads maximum it means you get better cpc right? given you have more than 2 advertisers.
Jackti.. at least on Adwords **I think** positioning is not only based on amount paid but also relevance.
That's correct. An overview is provided somewhere within the Adwords site. In a nutshell, the highest position goes to the advertisement with the highest CTR * PPC.
It makes sense because Google is trying to maximize revenue and giving the top slot to the advertiser with the highest PPC won't do that if its CTR is relatively low. Of course given daily advertiser spending quotas, rotating and other reasons the logic for what ads are displayed on a given impression are obviously more complex.