This paper presents an innovative two-level optimization framework for optimal placement of distributed generators (DGs) in competitive electricity markets, with a focus on mitigating market power and managing transmission congestion. The first level maximizes social welfare considering load flow, generator, and transmission constraints, while the second identifies strategic DG locations that reduce surplus gains of GENCOs exploiting congestion. The methodology is validated on the IEEE 118-bus system, demonstrating improved market fairness, reduced congestion, and enhanced system reliability. Comparative analysis with conventional methods shows that the proposed approach more effectively addresses individual GENCO behaviour, supporting a more efficient, equitable, and competitive electricity market environment.