I remember reading a long article on how Nintendo brought back video games. According to the article, they deeply analyzed the early '80s crash to determine what went wrong, so they could avoid whatever caused that.

The article said that their conclusion was that they main factor was the proliferation of a large number of low quality games from numerous third party publishers. This was a time when most people's only source of game reviews was magazines or person experience of friends. So a lot of games were bought blind, based just on the claims on the box. After people got burned on a couple low quality games or so, which cost about as much in today's money as today's games, they often stopped or greatly reduced their game buying. Hence, Nintendo decided that they had to control who could publish for their console.

Speaking as someone who was programming games for the Mattel Intellivision at the time of the crash, and got laid off because of it, Nintendo's analysis seems quite plausible to me [1].

Consider Intellivision games. The history for the other consoles is similar, but I know Intellivision best so that is what I will use.

Once upon a time, the only people who could write Intellivision games were engineers from APh. APh was/is an engineering consulting firm in Pasadena, CA, which was founded by and largely staffed by former and current Caltech students. APh designed the bulk of the electronics for the Intellivision, and more importantly wrote the ROM and the early games.

Not too long after that, the set of people who could write Intellivision games expanded to include Mattel engineers.

Games written at APh or Mattel could take full advantage of the ROM, which provided a lot of tools to make writing games easier. If you did not use the ROM you had to write a lot more code, know a lot more about low level hardware details, and you might need to use a bigger cartridge which could raise your costs significantly. (For example, the ROM provided high level sprite [2] handling. You could just give it a list of images, and tell it to animate the sprite with them at a specified rate. You could tell it to give the sprite a velocity and it would deal with moving it. You could give it callback routines for various types of collisions, such as sprite hits sprite or sprite hits background, or sprite hits edge).

The set of Intellivision game writers further expanded when people who had been Intellivision developers at Mattel or APh started leaving to form their own companies. Several key APh Intellivision people formed Chesire Engineering, which wrote Intellivision games for Activision. Imagic was formed by former Atari and Mattel people.

These companies had people who had used the Intellivision ROM. They couldn't take the documentation with them when they left, but they could direct a clean room reverse engineering effort to produce their own documentation sufficient to train new programmers in how to use it. So those companies could produce top quality Intellivision games, too.

But then companies start coming on the scene that did not have any ex-Mattel or ex-APh people, or anyone from Imagic or other places that had their own documentation on the ROM. These companies most likely started with the hardware documentation (both the CPU and the graphics system in the Intellivision were off the shelf General Instruments parts), and then reverse engineered just the boot code from the ROM to figure out what it expected to find in a cartridge. Then they handled everything themselves. This made it quite a bit harder to do a top tier game.

There were also console makers who wrote games for competing consoles. Mattel did games for Atari and Coleco consoles. Coleco did games for Mattel and Atari consoles. I don't remember Atari doing games for other consoles, but Wikipedia claims they did Centipede and Defender for Intellivision and Colecovision, and Pac-Man for Intellivision and Galaxian for Colecovision. The console makers, unlike the small, poorly funded companies from the above paragraph, had the resources to properly reverse engineer the ROMs of other consoles and then use them in their games.

A very large fraction of the games from this last group of companies were pretty bad. They were often rushed, because these companies were often not well funded--they had to get their game done and out fast. That also meant they could not get review copies to magazines with enough lead time for the reviews to come out before or concurrent with the game's release. The market went downhill rapidly at that point.

Anyway, I find it quite plausible that if the industry had stayed with each console only having games written by its own associated developers, the competing console makers, and a couple big third parties (Imagic and Activision), the crash could have been avoided.

[1] Actually, at the time, I was programming for what would have been the next generation Intellivision, which at that point was just a big box containing the CPU and a prototype of the next generation Intellivision graphics chip implemented as several wire-wrapped circuit boards full of 74xx or equivalent discrete logic chips. We could leave work at night, get back in the morning, and find that the hardware people had pulled an all-nighter and changed the design of the graphics, massively breaking all our code...except for Hal Finney's code which always managed to just take a few tweaks to fix no matter how radical the hardware change.

[2] They were actually called "moving objects", not "sprites", in all the Intellivision documentation and code, but I'm going to use sprites because this is what nearly everyone else calls hardware moving objects.