It honestly doesn't sound all that crazy to me.
Atari's upper management made every possible mistake at every possible point. I blindly supported Atari, not really understanding how their management was more than willing to screw everyone-- including themselves-- for a quick buck.
They never really understood the market they'd created, didn't CARE to understand the market they'd created, and treated their customers and employees like dirt.
There's simply a massive brick wall of cognitive dissonance that prevented Atari's management from being able to recognize an honest opportunity. If Nintendo had known this, they'd have never approached Atari-- but honestly, Nintendo had no idea what the market looked like post-crash, and only had the most basic intelligence gathered to work with.
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Try checking the MAME manual at http://docs.mamedev.org
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