The process of PPC bidding is through auctions. This doesn't seem like an auction because you don't usually see people calling out their rates, but it is essentially what you are doing behind the computer screen.
Think of PPC bidding auctions like advertising in Yellow Pages - if you want a higher and better ad space, then you have to pay higher. However, the analogy ends here. In the Yellow Pages, the rate is fixed but in PPC bidding, the rate is determined through auctions.
Most PPC auctions, including Google Adwords, are second-bid or Vickrey Auctions. This means the bid is won by the higher bidder but at the second higher rate. This strategy ensures that the optimal strategy for PPC auction bidding is to bid at the exact price you think the ad is worth. Going above or below this price will be bad for you. Thus when all people bid at their optimal which is independent of what others plan, the auctioneer, Google Adwords in this case, stands to gain. Thus the Vickrey auction model is most commonly used.
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