Third party developers want to get their apps onto the iPhone, because the platform has a lot of users, and there's a lot of money to be made. However, they will be forced to play by Apple's rules, which (according to the argument) is good for the customer, as the custodian of the platform has a vested interest in keeping them happy.
Now, if 3rd party stores were allowed, Apple's bargaining power which allowed them to force 3rd parties to respect the user's interest would go away, allowing developers to deliver a worse (eg privacy-violating) product.
Users who do not like this deal are free to go with an Android device instead of an iPhone. The popularity of the latter might suggest that quite a few people are reasonably happy with the status quo.