Review of Industrial Organization 24: 25–36, 2004.
© 2004 Kluwer Academic Publishers. Printed in the Netherlands.
Vertical Integration and Efﬁciency: Ownership in
the Swedish Sawmill Industry
Department of Economics and Statistics, Växö University, Växö University, S-351 95 Växö, Sweden
Abstract. This study investigates different types of vertically integrated ownership types in relation
to technical efﬁciency, in the Swedish sawmill industry. The theoretical ﬁndings connecting vertical
integration and efﬁciency points in two directions: both in favour for non-integrated ﬁrms and in
favour for fully integrated ﬁrms. In the study, signiﬁcant differences between ownership types are
not found. One possible interpretation of this result is that the integration advantages outweigh
the possible negative effects an integrated ﬁrms will have from maximising an integrated objective
Key words: Sawmill industry, technical efﬁciency, vertical integration
A majority of the empirical research concerning ownership and efﬁciency is related
to the question of private or public ownership (see e.g., Grosskopf and Valdmanis,
1987; Hjalmarsson and Veiderpass, 1992; Månsson, 1996). But theoretical research
has also focused on ownership types within the private sector (Grossman and Hart,
1986). One question, raised by Grossman and Hart (1986), focuses on efﬁciency
related to different levels of vertical integration. The study implicates that different
levels of integration result in different objective functions, and thereby it is also
possible to derive different results concerning technical efﬁciency. Since, to my
level of knowledge, no other empirical studies of this issue exist, we limit the
study to the following fundamental question; Are there differences in technical
efﬁciency caused by different levels of vertical integration? The aim with this
study is thus limited to examining the relationship between technical efﬁciency
and different levels of vertical integration within the Swedish sawmill industry.
Thus, explaining possible differences is beyond the scope of this study.
The ownership structure of the Swedish sawmill industry is somewhat com-
plex. There are three different kinds of ownership types, with regards to level of
vertical integration, i.e., non-integrated, partly integrated and, ﬁnally, fully vertical
Unfortunately the data does not provide prices, which makes it impossible to study allocative