A natural monopoly occurs when the production technology is characterized by increasing returns to scale and the level of demand is such that only a single firm can be profitable. High fixed costs can be an explanation of the increasing returns. For example, it may not be profitable for two electricity suppliers to serve a single town if both have to bear the fixed costs of installing an electricity supply network. The existence of a natural monopoly provides justification for government intervention since efficiency will not otherwise be achieved. This is contrasted with a statutory monopoly, where the incumbent’s position is based on laws to exclude possible rivals. An example of statutory monopoly is sole access to a necessary technology because of the exclusive possession of patents.