The Atari 7800 had a lot of catching up to do. By the time the system was released in 1986, the Nintendo Entertainment System had already made its way to the United States and Nintendo had made exclusive deals with multiple third-party developers. The Atari 7800 was left to scrounge whatever developers it could find, which resulted in a very limited library of new games.
The Atari 7800 was cheaper than both the NES and the Sega Master System, but the price point alone was just not enough to remain competitive. The NES and the Sega both blew the Atari 7800 out of the water in terms of performance and graphics. With such a small game library and outdated visuals, the 7800 was not only late to the party, but it simply couldn't compete.
Fortunately for the Atari 7800, it was still able to sell approximately 3.7 million units in the United States from the years 1986-1990, proving that at least some Atari fans were still excited for it.