Personally, I've never come across rivalry in parties at all.
I guess my DDs do have "big" parties, but then I figure I don't spend money on presents, DD's main birthday present will cost me £20 max. She'll only get a couple of little extras too.
To me, when I was a child we didn't have lots of money, so we didn't get lots of presents - but we did have fab parties - because excellent parties don't need lots of money, just lots of imagination! Now that I have so many wonderful childhood memories to look back on, I know that I'd rather spend the money on a fab party, which my child will treasure forever than a few £30 Wii games that will be forgotten about a few months down the line. It seems to be working too - last year, when I asked DD (then 5) what she wanted for her 6th birthday, she told she didn't really mind, because "birthdays aren't really about presents are they mum?"
So yes, I spend quite a lot on parties, but I don't feel the pressure to, and I don't care what other parents do - I only care whether I have given my child some fab memories of her 4/5/6.... birthday for her to treasure forever. So long as I do that I'm happy, whether that costs £50, or £250.
Probably wouldn't want to spend £500 though!