The fighting game will be available this year as a free download, but the game is not free-to-play in the traditional understanding of the term, Lobb said.
Players will have access to free fighter Jago at launch, but can purchase additional characters for $5 each or an eight-character pack for $20, or the Ultra Edition for $40.
"I just want to get as many people playing as I can," Lobb said. "Some people are like, 'oh, free-to-play.' No. It's not free-to-play.
"What is free-to-play? It's a thing you really can't ever own at all. Day one, if you want to buy our game, buy it. You own it," he added. "There's no grind for little coins that unlock things later. None of that."
Lobb explained that Microsoft's aim for Killer Instinct is to create an experience that gets the "most people possible back into fighting games."
"I like to call it, we've just made the world's most generous demo. And if you want to buy the game as a bunch of little premium DLCs, go ahead," Lobb said. "It's not free-to-play."
Microsoft recently said Killer Instinct is "not some hacked-off remake" and not a "cash-in."