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Video game crash of 1983

The video game crash of 1983 refers to the sudden bankruptcy of a number of companies marketing home computers and video game consoles in late 1983. The term "shakeout" would be a more accurate description of what happened, but because of its sudden and unexpected nature the term "crash" has stuck.

The crash has been attributed to a weak economy, poor quality of games (particularly the Atari 2600 versions of Pac-Man and E.T), and to very aggressive marketing of inexpensive home computers such as the Commodore VIC-20, Atari 800XL, Commodore 64, Tandy Color Computer and Texas Instruments TI-99/4A; the crash was probably caused by a combination of the three factors.

Up until the early 1980s, personal computers had primarily been sold in specialty computer stores and at a cost of more than US$1,000. The early 1980s saw the introduction of inexpensive computers that could connect to a television set and offered color graphics and sound. Since they generally had more memory available than a console, they permitted more sophisticated games and could also be used for tasks such as word processing and home accounting.

Commodore International went so far as to target video game consoles in its advertising, offer trade-ins towards the purchase of a Commodore 64, and unlike most other computer manufacturers, it also sold the machines in the same department: discount, department and toy stores that sold video game consoles.

Commodore's vertical integration allowed it to engage in some predatory pricing; its margins were much higher than that of Texas Instruments, Coleco and Atari, and, making matters worse, Commodore's MOS Technologies subsidiary actually manufactured many of the chips used in Atari computers and video game machines. The situation was similar to the calculator market in the early 1970s, when companies found themselves buying chips from Texas Instruments but having to compete with TI's calculators.

The result was a massive shakeout of the industry. Mattel, Magnavox, and Coleco all abandoned the video game business. Computer sales were also affected, as the Coleco Adam, TI-99/4A, and the line of Timex-Sinclair computers were withdrawn from the U.S. market, along with a number of other smaller players. Atari nearly went bankrupt and was sold off by its parent company Warner Communications (now part of AOL-Time Warner).

The longest-lasting result of the crash was the shift of dominance in the home console market from the United States to Japan. When the video game market recovered in 1985, the leading player was Nintendo's NES, with a resurgent Atari battling Sega, also of Japan, for the #2 spot. Atari never truly recovered, and eventually exited the hardware business in 1996. It wouldn't be until Microsoft entered the arena with the X-Box nearly 10 years later that the United States would have another contender in the console market.

Ironically, 1983 is by some considered a peak time in the history of arcade games, the home video game consoles' bigger stand-alone brethren located in diners, malls, and, yes, arcades. For example, the first real-time 3D arcade game was created that year (called I, Robot).

See also: timeline of video games