Yes they do. Their search already sucks in normal circumstances—I remember searching for “Pinboard” (the bookmarking service) and had to scroll by thirteen pinball (the game) apps before starting to see Pinboard apps—but you can type in the exact name of the app you want had have an ad for a competitor above it. Not only is it allowed, it’s encouraged.
They seem to have fixed that, at least for me all the top results are Pinboard clients or other products with Pinboard in the name.
With the ads it really feels like Apple is playing all sides, they almost always show the competitor first. When you search the competitor it's a different competitor at the top. You can keep going until you terminate at some app that presumably pays top dollar to appear as an ad for themselves right above their app in the search results. The only thing I'm surprised by is that they even allow people to put ads over their own first party apps
The ad slot is purely a revenue tool, not a discovery aid. It forces developers to pay just to defend their own branded search terms. App Store Search ads are a hidden increase in commissions that you either accept to pay by bidding on your own app's name, or omit at the expense of having competitors show on top of you all the time, stealing your revenue. It creates a significant drain on resources for indies, to the point that it's often no longer worth it to bother creating apps.
That's why Apple is now doing everything in their power to make app development easier, but that will more likely increase quantity and not necessarily quality, as it only deepens the ecosystem's problems by inviting more noise. The practical reality is, if you are not VC-backed and if you are not playing the heavy ad spend game, the App Store is more of a barrier than anything else.
I just tried this, searched for "Pinboard" and it was the first app after one sponsored app (that was oddly completely unrelated). Tried a couple of other things, like "Instapaper" "Unread" and they were the first hits after a single sponsored app.
Yes they do. Their search already sucks in normal circumstances—I remember searching for “Pinboard” (the bookmarking service) and had to scroll by thirteen pinball (the game) apps before starting to see Pinboard apps—but you can type in the exact name of the app you want had have an ad for a competitor above it. Not only is it allowed, it’s encouraged.