<p>Administrative monopolies, as a non-market barrier, significantly obstruct the flow of resources across regions and often prevent external enterprises from entering local markets. This increases the risks for enterprises implementing product diversification strategies. This paper examines the quasi-experiment of China’s Fair Competition Review System (FCRS), implemented in 2016 to regulate administrative monopoly, and estimates its causal effect on enterprise diversification. The findings reveal that the FCRS significantly increases both related and conglomerate (i.e., unrelated) diversification of enterprises. Specifically, the FCRS reduces external risks from unfair competition, enabling enterprises to expand product diversification by limiting local governments’ fiscal power and promoting external investments. This study provides new evidence and insights on the impact of competition policy on enterprise strategic behaviors.</p>