Cost-per-click (CPC) and cost-per-thousand impressions (CPM) ads compete in the same auction. Neither type of ad has a special advantage over the other.
Because the two pricing systems are different, AdWords uses a system of effective CPM, or eCPM, to compare and rank them. For cost-per-click (CPC) ads, the AdWords dynamic ranking system considers the bid, clickthrough rate (CTR), and other relevance factors, all taken across 1000 impressions. The resulting figure is the ad's eCPM, or effective cost per 1000 impressions.
For any available ad position, the eCPMs of cost-per-click ads are compared to each other and to all CPM ads. The highest-ranking ad wins the position and is displayed to the user. CPM ads must beat the sum of all eCPMs of the other ads that would have appeared. When a CPC ad is displayed, it is charged only if the user clicks on the ad. A CPM ad is charged for an impression whether clicked or not.
No matter which type of ad wins the position, the AdWords discounter monitors the competition and ensures that the winning ad is charged only what is necessary to maintain its ranking above the next-highest ad.
Learn how ads with placements and ads with keywords compete.
Learn more about how ads are ranked.
Learn more about how ads are priced.
