In a deregulated electric power system in which a competitive electricity market can influence system reliability, system analysts are rapidly recognizing that they cannot ignore market risks. This paper first proposes an analytical probabilistic model for the reliable evaluation of competitive electricity markets and then develops a methodology for incorporating the market reliability problem into composite power system reliability studies. The market reliability is evaluated using the Markov state space diagram. Since the market is a continuously operated system, the concept of absorbing states is applied to it in order to evaluate reliability. The market states are identified using market performance indices and the transition rates are calculated using historical data. The key point in the proposed method is the concept that the reliability level of a restructured electric power system can be calculated using the availability of the composite power system and the reliability of the electricity market. To illustrate an interesting feature of the proposed methodology, two case studies are carried out over a test system.