Higher Bid = Better Position? Think Again.

I was just reviewing my AdWords campaigns today for one of my products. It's a popular book, and the conversion rate is usually somewhere between 8% and 12% these days.

In looking things over, I noticed that a few competitors had risen through the ranks and gotten ahead of me in position. So, naturally, since it's converting well, I decided to raise my bid. In one case, I raised the bid from $0.50 to $0.75 and was presented with the following message:

"By increasing your bid, your ad may show more often, and receive more clicks. However, your ad's average position has decreased because it is competing with other ads more frequently."

Huh? I just paid more to move down? Something must be wrong with my logic, but I find that disheartening.