In other words - other than the for the ad to get more clicks, is there any other reason to pay more for the ad to show in a higher position? If our ad is last on the page but is still being clicked on, should I care if all our competition's ads rank higher on the page? Will better position (higher on the page) make people think that their product is superior in someway that they will choose to click on their ad because of that "superior" position or will their ad get more clicks just because it is more visible? And will their ad convert better?
If you have Google analytics and hooked it up with your Adwords account you should be able to find the answer out yourself.
I know that doesn't answer your question.
The difference is how many people use the most popular keyword to find an item, but are not interested in purchasing that item. For example, your ad is for red widgets. You may ignore the broad keywords and use just phrase and exact matching for "red widgets." You study your logs and reports and find that a lot of your visitors click the ad while searching with keywords like the following:
used red widget
red widget manual
red widget tutorial
bright red widget
red widget dangers
free red widgets
and so on. You perhaps identify these visitors as unlikely to purchase your new and improved red widgets, so you put in negative keywords for used, manual, tutorial, bright, dangers, free, etc. What you're still going to get is people who just type "red widget" into Google who aren't using those extra keywords even though that's their intention. They see your ad first in the top spot, and out of curiousity, click your ad to either see what the latest price is for a new one, or perhaps they hope you have the information they're looking for or a link to it.
If your most popular keywords can be used this way for a very popular item where they're looking for information other than to buy, you can get a lot of clicks with these keywords with a low conversion rate for the top spot. If you move it down an ad placement or two, you begin to optimize your ad clicks for people looking to purchase exactly what you're offering. Sometimes you have to move it further down even still.
The key is doing the analysis, studying your logs and reports, and finding the sweet spot for ad placement for each and every ad. That can be a lot of work, but it has its dividends.
