Ahh... the joys of economics.
Prices are set, not by the cost of production, but by how much consumers are willing to pay.
The main "consumers" of Microsoft Office are American corporations. These corporations are willing to pay more for Microsoft Office than for alternatives such as OpenOffice, WordPerfect Office, and Lotus SmartSuite.
The corporations are willing to do this because they save money by not having to train their employees -- because it is assumed that everyone already knows how to use Microsoft Office.
In addition, document sharing with vendors, customers, and business partners is easier because no document format translation needs to be done.
Eventually,
something will unseat Microsoft Office as the king of the office suites. Until that time, it seems that we are all going to be stuck paying a great deal of money for this huge pile of bug-ridden bloat-ware.