Display network ads participate in a number of ad auctions. Before participating in those auctions, Google Ads uses an internal ad auction to determine which ads to submit, the order those ads will appear, and how much those ads will cost. Your ads are ranked among other advertisers’ ads based on ad rank, which is based on your campaign targets, budget, and quality score. This means that if your ad group's quality score is sufficiently higher than the score of the ad group below yours, you ads can rank higher. Your ads are ranked among other advertisers’ ads based on the value that winning the auction could create for you.
How are you charged?
You'll be charged up to the value delivered per your campaign settings. For example, if you choose to Pay for Conversions for your Display ads campaign, you'll be charged only for the conversions delivered. For campaigns where you’re submitting bids directly into the auction, you'll be charged based on runner-up bids.
Why do we use an auction
Auctions are a fair way to select the ads that will appear on the Display Network. Because an ad auction ranks ads based on bids, campaign goals, and quality score, advertisers, publishers, and users all benefit. Ad opportunities are awarded to advertisers that value that opportunity most, in ad slots most likely to drive performance. Ads are shown to users for whom the ads are most relevant.