"Because it cost virtually nothing to copy bits, the supply goes up."<p>There's a lot more to this discussion, because it's not a theoretical 'perfectly competitive' market. Supply in the case of one product is restricted to one supplier so it doesn't mirror a normal S-D curve. In a normal supply-demand curve supply moves up because others enter the market with equivalent products, driving the price lower until there's a balance. In the case of Office, others have entered the market and, having created alternatives, the price is lower than it would otherwise be. There is a lower limit to the (price x sales) of Office below which Microsoft would have no incentive to create it.<p><i>If</i> the software market could be equated to a normal S-D curve with a single product in the market, software developers would quickly restrict the amount of applications they sell. You'd only have 100k Office licenses per year.