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The main reason for the crash would have been lack of quality control, leading to a glut of games that couldn't be sold. Once courts allowed 3rd party support(Atari tried suing Activision, former Atari employees, who usually made the consoles best games), Atari didn't seem to know how to handle that, and every company from Quaker Oats to Purina wanted a piece of the video game pie. It got to the point where there were so many games on the market, older games were being sold for 1/6th the price of new games, which made new game unprofitable.
I think this crash theory has debunked several times over now, and is often used more as an excuse to deify Nintendo than anything else. Following console generations have had lots of quantity and shovelware and survived just fine. Computer gaming has no first-party quality controls and does just fine. And most of the really garbage 2600 third-party games were obscure and sold in limited quantities. Games like Chase the Chuckwagon and Custer's Revenge were being played by a very small number of people.