That sounds like a volume discount, which is actually encouraged under most capitalist models to capture consumer surplus. Its not exactly what happened. To put it simply, Microsoft used a complicated pricing model where the OEM paid a lump-sum to Microsoft based on expected sales and Microsoft applied zero marginal pricing so every copy of windows was "free". But if they exceeded their sales they then incurred a fee for every additional unit sold. If they increased their sales, then the lump-sum would have to be renegotiated for the next contract. They wanted to tax the 'output' of the OEMs instead of just selling them at volume. It was a form of predatory pricing which got them into trouble. I don't believe competing OSes were ever a big threat to Microsoft.