Capitalism ain't pretty, but it's efficient
The "somewhere in between" you talk about will undoubtedly be hard to resolve. This reminds me of the tax breaks and benefits that corporations are winning to locate in this or that state or this or that country. How far do you go before it becomes a race to the bottom?
The "innovation" of hailing drivers with a mobile app doesn't seem hard to duplicate. If lower cost is the real draw, Uber riders will only know the difference when and if the driver gets lost, drives poorly, or gets involved in an accident and is revealed to be un- or under-insured. Though I've had some pretty scary rides with poor driving in shoddy vehicles that had legimitate medalions on the hood, so regulatory approval is no guarantee of a better, safer product.