Performance comparison of varchar(max) vs. varchar(N)

The question of comparing the MAX types (VARCHAR, NVARCHAR, VARBINARY) with their non-max counterparts is often asked, but the answer usually gravitates around the storage differences. But I’d like to address the point that these types have inherent, intrinsic performance differences that are not driven by different storage characteristics. In other words, simply comparing and manipulating variables and columns in T-SQL can yield different performance when VARCHAR(MAX) is used vs. VARCHAR(N).

The code path that handles the MAX types (varchar, nvarchar and varbinary) is different from the code path that handles their equivalent non-max length types. The non-max types can internally be represented as an ordinary pointer-and-length structure. But the max types cannot be stored internally as a contiguous memory area since they can possibly grow up to 2Gb. So they have to be represented by a streaming interface, similar to COM's IStream. This carries over to every operation that involves the max types, including simple assignment and comparison, since these operations are more complicated over a streaming interface.

Reference - http://rusanu.com