thats not true, if it was then nobody would be using adwords.
I think you have misunderstood what an economic race to the bottom implies:
http://en.wikipedia.org/wiki/Race_to_the_bottom
I'm not saying that AdWords isn't lucrative today - I KNOW it is. But I've been managing large AdWords campaigns for over 6 years now, so I have boatloads of data on how much higher CPCs have been pushed due to additional competitors joining the market, ie I just pulled up a client's account and got this:
2008 CPC - $1.56 - Avg Pos - 2.0
2012 CPC - $3.36 - Avg Pos - 2.1
That's a 115% increase over 5 years.
That's a 17% increase in CPC per year.
Now of course I understand that if we improve conversion rates of our landing pages then we can justify higher CPCs - but it's still an economic race to the bottom because everyone is doing the exact same thing (ie refining their ad copy and landing pages).
Think of it like this, last month we finished testing a new landing page design which achieved a 50% better conversion rate. So we were like, "sweet now that our cost per conversion has dropped well below our profit maximising point lets increase our CPC so that we can capture more market share".
That's a logical decision, until your competitor launches their new landing page which allows them to up their CPC which pushes yours ad back to it's original position.
So the ultimate result is that you have gone nowhere in that you have an ad in the same position, but you are just paying more per click now meaning your cost per conversion has not change.
Only real long term winner - Google.
It's quite the racket they got going.
But don't get me wrong, the client still does very well out of using AdWords, we estimate that every visitor to their site is worth $8 - $9 in profit and on average we are still only paying $3.36. So we still have quite a bit of margin to play with and I still have a few tricks up my sleeve in regards to further refining the landing pages, but that doesn't mean I don't see the long term inevitability of this AdWord warfare.
And no one wins from war except the arms dealers, which in this case is Google.
its about balancing your google spend CPC & CTR with conversion rates, if you are not converting then you have the wrong advert.
I actually don't think CPC has much to do with it at all, max CPC is determined by three things, the first two you mentioned CTR and conversion rate are indeed important, but what's more important:
Product profit margin - it doesn't matter how good your CTR and conversion rate are if you don't have a profit margin or if your profit margin is only 25% of your competitor's profit margin.
CPC is just a derivative of these 3 things, because it allows you to work out your profit per visitor then, once you know that you should be willing to pay up to that point but not over.
Would notify Google of it. The policy is about user experience in my view. If the same company has lots of different spots then the user experience will be poor, which is a negative for Google.
Yeah that's what I plan to do.
It isn't going to bring bids down, the result will be an overall higher CTR with a higher CPC as well because you'll be bidding against yourself. It is a way of paying more to try and competition out.
Plus you will be paying twice for the same lead...
This is called trying to find a loophole, wouldn't expect Google to be kind if they detect it.
I actually spoke with a Google AdWords rep about this issue a couple of months ago, what they said to me was that they probably wouldn't care if the ad pointed to page that offered a "different user experience".
ie duplicating your site or landing page on a different domain then running two adwords campaigns obviously wouldn't cut it, but if the second site was completely different you could potentially justify it. So I was thinking of maybe creating one site as a simple lead gen and the other as direct online sales.