When a cost per thousand impressions (CPM) bid competes with a cost per click (CPC) bid on the Google Display Network, how does Google determine which ad wins the higher position?

Introduction / Context:
On the Google Display Network, advertisers can choose different bidding strategies, including cost per click and cost per thousand impressions. Sometimes ads with different bidding models compete for the same placement. The system still needs a fair way to compare them and decide which ad appears in the higher position. This question asks how Google performs that comparison in the mixed CPM and CPC scenario.

Given Data / Assumptions:

• We are working on the Google Display Network with image or rich media ads.
• Some advertisers bid using cost per click and others use cost per thousand impressions.
• These ads may be eligible to appear in the same ad slot at the same time.
• Google must use a common metric to rank them and choose the winner.

Concept / Approach:
To compare CPC and CPM bids, Google converts each bid into a common unit called effective cost per thousand impressions. For CPC bids, the system estimates how many clicks are likely to occur per thousand impressions using expected clickthrough rate, then computes an equivalent effective cost per thousand impressions. All ads are then ranked by this effective value along with quality factors. The ad with the highest effective cost per thousand impressions wins the top position.

Step-by-Step Solution:
1. Recognize that the problem is about comparing different bidding models on the same auction. 2. Understand that you cannot directly compare dollars per thousand impressions to dollars per click without a conversion. 3. Google uses expected clickthrough rate to estimate how many clicks a CPC ad will get for a thousand impressions. 4. The system multiplies the CPC bid by the expected number of clicks to derive an effective cost per thousand impressions for that ad. 5. It then ranks all ads, both CPM and CPC, by effective cost per thousand impressions and quality metrics, awarding the higher position to the ad that offers more value per thousand impressions.

Verification / Alternative check:
You can think through a simple example. Suppose a CPC advertiser bids an amount that would result in two expected clicks per thousand impressions, and a CPM advertiser bids directly per thousand impressions. If the CPC ad would effectively pay more per thousand impressions than the CPM ad, Google will prefer that ad, provided quality is acceptable. This reasoning confirms that converting everything to an effective cost per thousand impressions is logical.

Why Other Options Are Wrong:
Option b is wrong because CPC ads do not always win; the outcome depends on bids, expected clickthrough rate, and quality. Option c is incorrect for the same reason in the opposite direction; CPM ads do not automatically win simply because they bid by impression. Option d is wrong because Google does not randomly choose winners; it uses an auction with calculated Ad Rank and effective values.

Common Pitfalls:
Many examinees assume that one bidding type has a permanent advantage over the other, which is not true. Another pitfall is to ignore quality and expected clickthrough rate when thinking about these auctions. In reality, user experience remains central, so poor ads will not win even if they offer high bids.

Final Answer:
Google calculates an effective cost per thousand impressions value for each ad using bids and expected clickthrough rate, and then ranks the ads by that value to decide which one wins the higher position.