This study, based on primary data collected from 120 groundwater users in eastern dry zone of Karnataka compares the water use efficiency among different categories of water users, viz. well owners who do not sell water, well owners who sell water either for agricultural or non-agricultural use and water buyers (both agricultural and nonagricultural). Some of the important findings are- • The cropping pattern varies between categories, with both the sellers and buyers preferring low water intensive mulberry crop, while the self user's category grew more water intensive crops. • Farmers who sold water for non-agricultural purposes earned the highest return (because of higher end-use price) and also made the most efficient use of water. Thus, making a point that end-use pricing is a key in shaping marginal productivity of water. • Compared to the self-users, farmers selling water for either agricultural or non-agricultural purposes realized higher marginal productivity. Thus,groundwater markets acted as an effective tool in enhancing efficient use of a scarce resource.This study explores efficiency and equity in groundwater markets in the hard rock areas of Karnataka. It compares the water use efficiency of farmers using groundwater for irrigating their land and also selling it for agricultural purpose (WSA, n=30), farmers using water for irrigating their land and also selling for non-agriculture purpose (WSNA, n=15), farmers who do not either sell or buy water but use it on their farms (WO, n=30), farmers who are buying groundwater for agriculture purpose (WBA, n=30), and buyers of water for non-agriculture purpose (WBNA, n=15). The Nash equilibrium framework describing the bargaining power of buyers and sellers of groundwater is used. Sidlaghatta taluk in eastern dry agroclimatic zone (EDZ) of Karnataka is chosen because it supports intensive groundwater markets. The objective of the study is to find out water use efficiencies among different groups of water users with the hypothesis that WSNA obtain higher water use efficiency than WSA, WBA, and WO.