You are comparing Microsoft Word to a walled garden.
Nothing Microsoft did with Word back then was unusual. Word is not going to use an 'open' format back then because they were not ready. Everyone used their own format back then.
If other programs could not open Word that was their fault not Microsoft. Fonts and formatting were not as standard as they are today and WordPerfect and others had considerable market share.
You've got that exactly right, Littleshop.
Back when word processors were in their infancy, there was no 'standard' file format. There wasn't even a thought at a 'standard', because you couldn't make a standard when there were so many unknowns about what next thing to add to your program. Tables? Images? Different fonts? When the full set of features became more stable, only THEN did a standard make sense, and only THEN to the losers of the market share battle.
Additionally, what would Microsoft gain by making their word processor 'Word Perfect compatible'? Nothing. They would be stuck waiting for Word Perfect to create the next new feature before Microsoft Word could have it. Microsoft Word would always be one step behind the competition - why buy it? The best way was for Microsoft Word to read existing Word Perfect documents, then be able to save them as Word documents - allowing for Microsoft Word to be ahead of Word Perfect. That's how the market worked back then.