Smart Pricing is applicable not to the search network, but the content network only, and was first implemented in 2007.
This effectively was Google’s attempt to overhaul the pricing arrangement specifically for contextual advertisements.
The fundamental purpose of Smart Pricing is to analyse specific data across the Google Network to draw conclusions.
Then Smart Pricing will ask the question: will the click from a Google Network page convert into a sale?
Based on conclusions, If Smart Pricing does not feel that a click from a Google Network page will convert into a sale, (or any other actionable business result), Google may reduce the price for that bid.
Google states that it is designed to save you time and hassle by estimating the value of clicks and adjusting bids on a regular basis. Remember that on the Google Network, it is in the best interests of everyone, including Google, to obtain a click.