This refers to a marketing strategy in which when choosing between two products, the introduction of a third less attractive alternative(the decoy) induces us to buy the targeted product and makes us move away from the competitor's product.
For example -
You see 3 popcorn bags - small , medium and large. Even though you dont need the large one you will end up buying it just because it seems a much better deal than purchasing the medium one.
This is how this strategy proves to be a quite profitable approach for companies while on the other hand it usually makes a consumer spend more than what they really need.