This paper presents an agent based market model for combined operation of the grid connected smart microgrids with price sensitive consumers by executing demand side management strategies. This model maintains a non-discriminative market environment among the consumers and generators of the microgrids connected across the distribution system. The novelty of this agent model is in two fold. First, a novel incentive mechanism called priority banking is proposed to encourage the consumers by giving them a share in locally available generation. This mechanism also monitors how often the consumers are utilizing the incentives and thereby updates their priority. Second, after executing the contracts obtained from the market, the loss contribution of each trade to the overall network loss is calculated using a novel network loss allocation method. The applicability and effectiveness of the proposed agent based market model are exemplified using an IEEE 37 bus distribution feeder network with two grid connected smart microgrids simulated in Open DSS and the proposed multi-agent system is built on JADE framework.