An introduction to the ad auction from our Chief Economist

Wednesday, March 18, 2009 | 10:51 AM

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The AdWords auction works a little bit differently than what people normally picture when they think of an auction. That's why we asked our Chief Economist, Hal Varian, to break it down for everyone in a video posted to our Inside AdWords blog. Keep in mind that it was originally produced for Google's paying advertisers, so references to charges and payments only apply as deductions from your Google Grant. Also remember that you're limited to a $1 maximum CPC bid, unlike paying advertisers.

Given those caveats, we think this video really helps break down how it all works and how you fit in to the overall AdWords auction. Rather than selling our top ad placements to the highest bidder, we combine your CPC bid with your ad's Quality Score to determine how your ad ranks and how much you actually pay through your Google Grant when someone clicks on your ad. You only pay the minimum amount necessary to maintain your position on the search results page.

Hal is on leave from Berkeley, where he's a professor of economics. Like a true professor, he makes this rather complex process seem simple. Have a look:



Galen, Google for Non-Profits team