I have this ad configured so that the URL that is displayed looks like this: "http://www.domain.com/productname". However, the real URL that the user goes to after clicking the ad is simply "http://www.domain.com".
Also, just in case someone sees the ad and for some reason manually types in the display URL, I added a folder on my server named "productname" and I set up a 301 redirect which goes to "http://www.domain.com".
The page must actually exist.
If your ad points to your own website, you can obviously arrange for the page to exist.
If you are an affiliate directing to the merchant's website, you don't have control over this. You need to choose from among the web pages that the merchant actually has.
It's not acceptable for the URL to resolve to a 404 error, or a custom error page. It needs to be a real page.
Unfortunately, this is one of those things that Google could easily check automatically but doesn't. If you complain about a competitor, Google will EVENTUALLY make them correct it.