Abstract: In the era of digital economy, people impose higher requirements for personal privacy protection. Though the improvement of privacy protection by mobile phone firms can enhance users’ trust and purchase intention, the lack of advertising targeting abilities of mobile phone applications is not conducive to improving advertising revenue. In order to balance the development of privacy protection efforts with the advertising revenue of application developers, this study explores the development of privacy protection efforts and pricing decisions of mobile phone manufacturers by developing a two-sided market model. The results reveal that when the revenue per user of the application is low, the equilibrium number of users and developers increases with the increase of privacy protection efforts. Otherwise, it decreases. When the unit utility derived by a user from using the application or the revenue per user gained by the application developers increases, the manufacturer should lower the price timely. Nevertheless, when the negative utility of privacy protection efforts for users increases, the manufacturer should raise the price. Besides, when users’ basic utility gained from the phone is relatively high and the number of privacy protection efforts is relatively small, the manufacturer’s investment in privacy protection will increase the profits of both manufacturers and app developers. This study aims to guide mobile phone manufacturers in formulating effective privacy protection and pricing strategies, ensuring user data security, and maintaining the robust operation of the mobile platform ecosystem.

Key words: Smartphone firms, Privacy protection, Two-sided platform, Pricing decision