It is better to pay to be #1 for a small number of best users

I might have set up a false dichotomy here, as the most profitable outcome will be somewhere in the middle since you don’t have to get the absolute top rank to get a click. But the thing is, if clicks from the best audiences cost you $1.20 and clicks from the worst audiences cost you $0.50, you’d want to set up your campaigns so that you only bid on the cheap traffic if there were no “best” people left. If the better audience are many times more likely to purchase from you, targeting the cheaper audiences to get more traffic would just be a waste of money. Always seek to be the undisputed leader for your best customers, and let your competitors fight over the rest.