Bidding on competitors’ brands and unique keywords is the sort of thing that’s allowed by most advertising networks, yet I hoped Apple would prevent it on the App Store. It’s dirty and mischievous.
Schiller talked about this in The Talk Show live. Short version from memory: this is allowed and benefits small devs more than big.
I’m very skeptical that this is a benefit for developers (who would have to outbid others just to protect their own app’s name as a search term) or for users (who expect what they search for to be at the top). Note, also, how the ad takes up more of the screen than the actual matching search result.
A very large company like Facebook could conceivably bid on all major social networking keywords, for example, and push down any competitors on the search results page. Or, in a more nefarious scenario, a well-funded low-quality or knockoff app could bid its way to the top of search. I’d hope Apple puts a stop to this; it would be inadequate to simply add “Report” buttons for ads that engage in this sort of behaviour.