Google computes the price for an ad using a unique auction model. The process involves determining the minimum bid an advertiser could have made to receive their ad allocation, framed as a hypothetical question. This calculation takes into account the ad score, which combines both the bid and the quality of the ad. Improvements in quality can lead to potential reductions in the required bid, allowing for better overall efficiency in ad placement[1].
In this second-price auction model, each higher placement carries a higher cost. Advertisers, like Booking, base their bids on their return on investment (ROI) goals, making the price-setting responsive rather than fixed[4][2]. Additionally, Google aims to benefit from innovations designed to improve advertiser outcomes by monitoring excess CPC, ensuring they retain the advantages from such advancements[3].
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