That's true, Lisa... Google Adwords will not show more than one ad with the same top level domain name.
For me, it's never been a problem, since I usually do not link directly to the merchant page, especially if I know I have competition. What I do is to create a landing page through my own domain, where I can pre-sell and provide more relevant information, or collect name/email addresses, etc.
If I am linking directly from my ad to the merchants page, then I am smart about it... I only bid on super targeted keywords that I don't have much competition (even if the niche is competitive)
Honestly, though, I have not used Google Adwords for a while, I have been using other search engines.
Hope this made sense.