How does Google AdWords decide how much to charge me for clicks?

Google AdWords uses the Google AdWords Discounter to calculate how much to charge you for clicks. The Google AdWords Discounter compares your ad bids to your competitors’ bids and automatically reduces your actual cost per click so you pay the lowest price possible for your ad's position on the page. The Google AdWords Discounter ensures that you only pay the minimum amount required to exceed the rank of the next ranked ad.

Google AdWords uses bidding to determine which ads are run on Google and in what order. Simply put, the ads with the highest bids are ranked higher than ads with lower bids, although this isn’t always the case since keyword quality score is also a factor in ranking ads.

When your ads get triggered by searched keywords, Google instantaneously compares your maximum CPC (max CPC) bid and keyword quality score to your competitors. The Google AdWords Discounter ensures that ads with a combination of higher bids and higher quality scores rank higher than ads with lower bids and lower quality scores. Plus, the Google AdWords Discounter makes sure you only pay the minimum amount required to exceed the rank of the next ranked ad. For this reason, you’ll often pay less than your max CPC bid, which saves you the unnecessary expense.

See: What makes people instantly click Google Ads now?