Microsoft is raising prices not because of tariffs — but because it can

Hiking the cost of gaming subscription services is a consistent pattern, one that predates Trump’s tariffs.

By Ashley Nowicki, Policy Analyst

In May, Microsoft increased the prices for its five-year-old Xbox gaming console and related products — including digital games, which are set to rise from $69.99 to $79.99 — by double digit amounts. Like many consumer goods over the past ten years, gaming is becoming more expensive. But one would be hard-pressed to find criticism of Microsoft for raising prices. Instead, most blamed President Donald Trump’s recently enacted tariffs. “Microsoft raises Xbox prices due to tariffs,” blared a typical such headline from Axios.

It is true that tariffs will affect the cost of physical products — as Xbox consoles are primarily manufactured in China. However, evidence suggests there is something else going on here. Here’s a telling point: while media outlets are citing tariffs as the reason for price hikes, Microsoft itself is not. Instead, the firm claims “market conditions” and the “rising cost of development.” Microsoft is also raising prices on items not affected by tariffs across the globe, including digital games and digital products outside of gaming. No surprise, many gamers — including myself — are cynical about what is really going on. As one player noted on a gaming forum the day these price hikes were announced, “[a]re we really supposed to [believe] the … price increase is because ‘games cost more to make’?”

It would indeed be odd if tariffs were causing all these price hikes, since digital products, unlike physical ones, are not subjected to duties. And, it turns out there is an explanation outside of tariffs for all of this. One that that suggests that gaming — and American corporate commerce more generally — is increasingly organizing itself and using pricing strategies that are going unnoticed by most of us.

If you dig in to the Microsoft price increase further, you’ll discover hiking the cost of gaming subscription services are a consistent pattern, one that predates Trump’s tariffs. During the Biden administration, Microsoft raised prices on its gaming subscription service at a time where there had been no major changes in tariffs. Instead, the announcement came only a few weeks after Nintendo — a video game company that develops portable consoles — revealed a new generation console and higher price tag for games.

But what Microsoft didn’t do was raises prices on its products and offerings in tandem with tariffs. Even during the first Trump Presidency, when the U.S. imposed tariffs on China, the company did not increase the price of its console or games. Usually, Microsoft and Sony — Microsoft’s main competitor in the gaming industry — decrease the price of consoles over time. But in fact, this is the first time since the launch of the original Xbox or PlayStation where Microsoft increased the price of a console years later.

Moreover, so far, rival Sony is pursuing a different strategy — lowering the prices of games and its latest console, at least here in the United States. However, the company has already raised prices in countries outside of the U.S., and could still choose to do so moving forward.

So if it’s not tariffs, what else is going on here? To understand that, we should look at the strategy Microsoft’s embraced to compete in the games industry. In an effort to build its size, dominance, and, ultimately, pricing power, Microsoft has shifted away from competing with rivals directly, and instead has moved to build what their own executives called a “moat” around the company. To do this, Microsoft has spent over $100 billion acquiring nearly 100 companies over the past decade. In the gaming industry, Microsoft has acquired more than 25 game developers, publishers, and studios since 2000.

This includes Microsoft’s controversial and high-profile purchase of gaming giant Activision Blizzard for $68 billion in 2022. The Activision Blizzard merger was the capstone of Microsoft buying its way into dominance — an attempt to turn the gaming industry into a Netflix-style subscription model.

Microsoft first announced the deal in 2022, and the Federal Trade Commission (FTC) challenged it in court only to see — after a long, public and attention-getting trial — Federal Judge Jacqueline Scott Corley rule that the FTC failed to show that pausing the merger was in the public interest. This ruling was made, in part, because Microsoft persuaded the judge that the deal would not lead to less competition.

The FTC argued Microsoft would, if the Activision-Blizzard merger went through, have both the means and motivation to restrict content and degrade quality of Activision-Blizzard games on competing consoles, subscription services, and cloud services. This would, in turn, the agency argued, “likely harm competition and consumers by leading to higher prices, lower quality, reduced product variety, and less innovation.” Microsoft, the agency further pointed out, was already investing “heavily in a strategy to rapidly scale up” its subscription and cloud service, and has a history of “foreclos[ing] … rivals” and “withholding … content.”

Antitrust trials are useful instruments to understand the real motivation for corporate behavior, as litigators expose internal emails and discussions, giving us more to go on than what are often self-serving public explanations. And this is what did indeed occur here. As head of Xbox Game Studios Matt Booty was revealed to have said, “we are NOT putting our first party IP on competing streaming or subscription services.” This sentiment was subsequently reaffirmed after the deal closed by Executive VP and CFO Amy Hood, who revealed on an investor call that the “real goal … is to … take a broad set of content to more users in more places [cloud gaming], … and build … a subscription business.”

But instead of taking the FTC’s concerns seriously, the judge took Microsoft at its word that it would allow one popular game to be sold on PlayStation (Sony) for the next decade, claiming there would instead be “more consumer access.” She ignored the FTC’s argument about subscriptions, cloud gaming, or other Activision Blizzard AAA games.

Not all parts of the FTC’s case came true. Microsoft has not yet withheld games from rival consoles. But its strategy to boost revenue has been aggressive and successful. The company has used its new dominance and content to privilege its own subscription service, and withheld games from rival services. It’s raised prices on consumers who use its GamePass subscription service in both 2023 and 2024. Microsoft also closed a number of game development companies and cancelled a number of games — including Arkane that made Redfall and Dishonored, a Blizzard game Project Odyssey, and most recently The Initiative which was set to release game Perfect Dark. Microsoft has, moreover, laid off or fired around 36,000 employees — including nearly 2,000 video game employees.

In other words, the company has reduced its costs while likely reducing quality. Such actions may be smart for short term shareholder value, but they are also what critics of the deal suggested the company may do — including the FTC.

It also appears that Microsoft is also going all in on its subscription and cloud services strategy — moving towards a model of finacialization vs. one of innovation and creation — and embracing its role as the top video game publisher in the world. By raising the prices of consoles and individual games, the company is ultimately pushing more players towards lower-cost subscription models or free-to-play games. It sounds good — but such lower-cost subscriptions limit gamers to lower quality games that they only have access to but don’t actually own. It’s also likely encouraging more micro-transactions — where players buy in-game cosmetics or battle/season passes as they progress through a series of unlockable rewards by playing the game. The micro-transaction strategy can entice consumers to pay more over time than they would were they presented with an upfront price.

This aggressive monetization strategy has been a boon for Microsoft and a bust for consumers. In the gaming sector alone, the company earned nearly $6 billion in revenue between January and March of this year alone — a 5% increase from the previous year. And the company's profit has increased $7 billion — or 23% — from 2023 to 2024, led in large part by the gaming sector. Clearly, Microsoft’s strategy of acquiring dominance has paid off. In a just and fair world, Judge Corley would have some explaining to do about why the acquisition was lawful. Instead, the Trump era FTC dropped their bid to stop the Microsoft-Activision Blizzard deal altogether — and they did it just days after Microsoft announced price hikes for Xbox.

As a result of all this, Xbox — as gamers know it — is dying. Instead of investing in game development, Microsoft is laying off thousands of workers and shutting down games, and instead investing $80 billion in AI. Over time, experts now expect that there will be a decline in demand for “premium” video games, affecting developers’, producers’, and studios’ sales, which may lead to fewer game options, job layoffs, work-place closures, and more consolidation in the gaming industry. Small retailers that depend on Xbox and related sales may also see a drop in revenue and struggle to compete with larger retailers.

In reality, none of this is necessary. Microsoft is one of the world’s most valuable companies and is in the top 20 on the Fortune 500 list. In the first three months of this year, the company earned over $70 billion in revenue, a 13% increase from the previous year. And just in the last few months, the company announced a $60 billion stock buyback program and paid out nearly $10 billion to shareholders — all while laying off even more employees.

We shouldn’t assume that all price hikes are unwarranted, as tariffs will affect the physical costs of electronics. But it should also be clear that, as we mentioned above, Microsoft’s own-admitted strategy has been to “create a moat that nobody else can attack” around its gaming business. This is similar to what dominant streamers have done in Hollywood, or how other vertically integrated giant firms do so in industries across the economy, including health care, digital advertising, music labels, and mattresses.

As a society, we need to weigh the costs of these integrations on our business environment, wallets, and quality of life. To do that, we need to understand the corporate consolidation that’s occurring, instead of simply dismissing the increase in prices and decrease in quality as a result of tariffs. As for gamers like myself, they will have no option but to stomach these higher prices or, to borrow a term from gaming, go AFK — that is, away from keyboard (or console) — entirely.