The crash of 1983.
> Atari 5200, ColecoVision, Odyssey² and Intellivision all release their own consoles because holy shit vidya is a marketable thing now, each with its own huge library
> market has absolutely too many games for the consumer to make an informed decision
> stores are lending too much floor space to vidya
> personal computer prices are lowering, and better graphics + processing speed + memory increases interest in them, waning demand for consoles
> manufacturers over-project demand and sales, and pump out a surplus of consoles and games
> price wars between PCs and consoles forces console companies to reduce pricing to ridiculous lows
> sales slump and production is cut back mid-year, leaving a huge market gap around Christmas season
> the prior year, 1982, Activision had won a case settlement with Atari, who tried to block the ex-Atari employees from publishing any games; this legitimized 3rd-party game development
> after this case, the opening of several dozen new dev companies slammed Atari's ~75% market share of cartridge games
> these new companies are mostly inexperienced with game-making, and many resort to reverse engineering and industrial espionage to get by; even Atari gets in on the action, prompting a lawsuit from Mattel
> not many new games do anything new, and many that sell in quantity are copies of previously successful games
> stores don't have enough space for the glut of shovelware coming in, and start sending surplus back to the publishers
> publishers start going under left and right because they have no new products and no cash to issue refunds
> stores can't return surplus anymore and start bargain-binning these literal hundreds of trash games
> price of avg. game bottoms out from $35 to $5 (~$92 to ~$13 in 2018 dollars)
> many companies withdraw from video games entirely; many more close up shop permanently

TL;DR an industry worth $8.2 billion in today's money fell ass-over-teakettle for a 97% loss in under 2 years due to flooding the market with garbage games