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He could be paying $0.05 per click. Rank is determined by CTR x QSA. Just because you bid $50 and are in second place, does NOT mean he is paying $50.01. If his CTR is high and his QSA is high, he can pay LESS then you and still get a better position. If you truely are making money with adwords, you could be making a lot more if you did some research.
In overture, what you say is correct as that system is based PURELY on the amount of the bid to determine rank. However, adwords is not the same, (not even close).
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