A fairly basic but confusing question in the pay-per-click auction space of search advertising is often around the topic of match types and the auction around it.

One question asked at a Google Groups thread asks if I am bidding $2.00 for broad match and $1.50 for an exact match and someone searches for the exact keyword, do I pay $2? The clear answer to that is that you pay up to a $1.50. Why? As AdWordsPro Sarah said in the thread:

The follow up question to that, was who wins? Meaning, would a higher bid in broad match from a competitor beat out your lower bid within your exact match campaign? As Sarah notes, assuming all else is equal, the higher bid will win.

So, if you have an exact match with a lower vid and a broad match with a higher bid, but your competitor has just a broad match with a higher bid then Google will pick your exact match bid and your competitors broad match bid and compete those two ads based on bid and quality score.

Forum discussion at Google Groups.