They allow competing browsers but they have to use the OS-provided JavaScript engine. I guess one could make an argument that allowing third-party engines would encourage innovation in the browser space but at the same time, there is a strong security argument for very narrowly limiting the JIT-code execution entitlement.
Android Firefox only added support for WebExtensions recently, like within the last few months.
Safari on iOS has had support since 2020.
I would argue that Firefox and Chrome are not being restricted in any ways that harm users.
Firefox likely wouldn’t have added support for web extensions even with access to Gecko.
Chrome wouldn’t ever add support for extensions since Google is actively trying to fight against ad blockers.
The only outcome of opening up iOS to other browser engines, would be an increase in Chromium marketshare.
Which is in essence forbidding competing browsers. If if quacks like a duck and etc. I.e. if it's using Apple's JavaScript engine, it's Apple's browser.