The concept of demand response (DR) market, which recently introduced, is a comprehensive approach to schedule DR. DR market is a separate market in which DR is treated as a virtual resource to be exchanged between DR buyers and sellers. The major advantage of the DR market in comparison to other DR proposals is that it allocates benefits and payments across all participants, fairly. However, there are still obstacles to its integration into the existing power markets. This paper tries to address technical and economical issues towards integrating DR market into energy/reserve markets. For this purpose, a bilevel approach is proposed for clearing joint energy/reserve and DR markets whose upper-level problem determines system requirements for reserve using N-1 contingency criteria, and whose lower-level problem clears the DR market. The resulting nonlinear bilevel programming problem is translated into an equivalent single-level mixed-integer linear programming problem by replacing the lower-level problem by its Karush– Kuhn–Tucker optimality conditions and converting a number of nonlinearities to linear equivalents using some well-known techniques. Finally, a simple case study is used to verify the efficiency of the proposed approach

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