In most PPC programs, the algorithm is simple. The higher you set your CPC, the higher you rank on the results page. But this is not the same story when it comes to Google Adwords.

Bidding with other PPCs
Bid
Ad position Competitor 1 $2 First Competitor 2 $1 Second

But Google AdWords works on a different basis.

Bidding with AdWords Max. Bid CTR Rank Ad position Competitor 2 $1 10% 10 First Competitor 1 $2 3% 6 Second
The AdWords platform will give more weight to the ads with the highest click through rates (CTRs), and will display them more often than ads with lower (CTRs) in the same ad group.

The other important aspect in bidding by Google's rules, is that often you pay less than your maximum bid (max. CPC). The AdWords system automatically calculates the CPC you need to maintain the position of the competitor below you, and charges you only one cent more to display your ad first.

This shows you that you don't need to bid so high in order to get a good ad positions. But also don't bid too low as Google will display your ads for a fraction of the searches and this can be very bad if you were on a winning streak. Think thoroughly how much you want to spend daily.

Good and targeted keywords, your ad copy and your landing page will determine your CTR