This study investigates the effects of the British Airways/USAir alliance on the market value of their rival firms. We find that for a series of events leading to the alliance the value of rival firms responds positively to "discouraging" events that decrease the likelihood of the alliance being consummated, whilst it responds negatively to "promising" events that increase the likelihood of the alliance being consummated. On the other hand, the value of partner firms responds positively to "promising" events but negatively to "discouraging" events. This may suggest a potential channel through which international alliances improve partner firms' competitiveness and their profitability, which in turn decrease rival firms' value. Our analysis also indicates that the effects on rival firms do not appear to be moderated by the degree of rivalry between the alliance partners and their rival firms. (C) 2002 Elsevier Science Ltd. All rights reserved.