Hotels can have lots and lots of priceline rates.

Priceline books the highest applicable rate.

So if there's a $42 rate and you bid $60, the hotel may well have a $60 rate in which case it gets $60. But if the closest rate to your bid is $58, then Priceline pays the hotel $58 and keeps the $2 difference.

Actually, as I understand it, Priceline derives revenue from 3 sources
* Booking fee (used to be a fixed amount, now sliding and reported to you along with taxes in a single figure)
* A commission paid by the hotel on the accepted rate
* Overbids

But my point about overbids is that since a hotel can have 50+ rates, the amount Priceline keeps on an overbid is likely to be small.