The three main search engines in Europe (Google, Yahoo and Msn) follow the same concept/idea to determine the cost you pay for each click made on your ads. Here are the main rules:

1. Search engine will never charge you more than the Maximum Cost per Click (Max CPC) that you have set up for a keyword.

2. Main search engines do not return systematically on the 1st position, the advertiser that put the highest Max CPC.

They also consider the relevance of the ads they judge via the Click Through Rate or CTR (Number of click divided by Number of impression). If your ad is more clicked compared to the other advertiser for a specific query, it means that users consider that your ad offers the answer to their question.

Search Engines prefer to get a lot of cheap clicks than few expensive clicks. They usually make more money at the end.

E.g. Let's consider two advertisers having their ad receiving 1000 impressions on 1st position for a specific query: one advertiser gets 100 clicks at $0.50 = $50.The other received 50 clicks at $0.75= $37.50. Search Engine will prefer to return the first one higher than the second one, even if it pays more per click.

3.  Search Engine charge you less and sometimes substantially less per Click than your Max CPC.

Visit those links if you want to have a more detailed explanation about how each search Engine calculate the cost per Click and rank your ad for a query in relation to your competitiors: Google CPC, Yahoo CPC.