> New way: Winner bids $1.00, 2nd place bids $0.80, Google adds 15%* markup to 2nd bid, Winner pays $0.93. This is true. But the story gets crazier. Let's say

> New way: Winner bids $1.00, 2nd place bids $0.80, Google adds 15%* markup to 2nd bid, Winner pays $0.93. This is true. But the story gets crazier. Let's say that CorpA and CorpB are both bidding on the term "Valuable Widgets". Here is who it goes: CorpA bids $0.80 CorpB bids $1.00 -- CorpB wins the auction, pays $0.80 + 15% = $0.92 -- CorpA is sad they lost and wants so they try to outbid. They must pay $1.00 + 15% or $1.15 CorpA wins the new action, paying $1.15 -- CorpB needs those auctions to sell more widgets, so they now must pay $1.15 + 15% or $1.32 It obviously goes back and forth, but as you can see, Google is widening the gap each time to escalate the bid up faster. It increases competition and raises prices. In order to win you can't just pay what the previous person paid, you must pay a premium of 15%. Now the part that is unclear is what happens if you ignore the winning bid price. So if CorpA has a max bid of $1.00 and CorpB tries to bid, they will see that they need to bid $1.15 to win the bid, because Google is saying that is what is needed to win the auction, but if CorpB only bids $1.10 they should still win the auction at $1.10 since that is their max bid and CorpA is only willing to pay $1.00. So CorpB in this case would pay their max bid and win. But either way, google is artificially pushing the price up higher than it technically needs to be.