In this case, this regulation is in response to previous misbehavior. NYC cabs used to accept so-called 'radio calls', where one could call a cab's central office to schedule a pickup. Cabbies would flip the 'radio call' flag on when they didn't want to pick up a minority, go to a distant destination, or charge more during rush hour. Cab companies are jumping at this app, since it gives them the ability to again discriminate against undesirable customers and inconvenient destinations.
The free market provides plenty of opportunities for cabbies to choose their customers. There are private car services and 'gypsy cabs' that customers can call or, presumably, 'hail' via an app. These companies can charge what they want and in many cases the cost is comparable to a yellow cab; in fact, private car services typically charge a fixed price that sometimes works out to be cheaper than a similar trip in a yellow cab.