Yevamos, chapter two, mishnah two. The first mishnah of the chapter dealt with one example of the wife of a brother who was not alive in his lifetime - a brother who was not living at the time that his deceased brother was alive, so there is no obligation of yibum and the wife of the deceased brother is considered an arayah (a forbidden relative). Our mishnah presents a further example of this, and here the Tannaim disagree.
The case in the mishnah:
There are two brothers, and one of them dies.
The second brother performs yibum with his sister-in-law, the widow of the deceased.
After the yibum, a third brother is born.
The second brother dies, leaving behind two wives: the yevamah with whom he performed yibum, who had been the wife of his deceased brother, and his original wife, who is her co-wife.
With regard to the third brother, who was born afterward, the mishnah establishes two rulings:
"HaRishonah yotzeis mishum eshes achiv shelo hayah be'olamo" - the wife of the first brother, who died, was the wife of a brother who was not alive at the time that the third brother came into the world. She therefore goes out and is free to marry anyone else, and she requires neither yibum nor chalitzah, since she is considered an arayah.
"V'hasheniyah mishum tzarasah" - the second woman is exempt by the law of the co-wife of an arayah.
"Asah bah ma'amar u'meis":
As was also explained in the previous mishnah, this refers to a case in which the second brother did not actually perform yibum, but only made a ma'amar with her - a rabbinic form of betrothal that precedes yibum. By Torah law they are not co-wives to each other at all, and therefore:
"Choletzes" - the second woman requires chalitzah, since by law she is obligated in yibum and she is not the co-wife of an arayah by Torah law.
"V'lo misyabemes" - yibum is not performed with her, because she has the appearance of the co-wife of an arayah: her deceased husband did not perform yibum with the first woman, but only made a ma'amar with her.
The view of Rabbi Shimon:
"Rabbi Shimon omer: meyabem l'eizo mehen sheyirtzeh, o choletz l'eizo mehen sheyirtzeh" - in Rabbi Shimon's opinion this is not a case of the wife of a brother who was not alive in his lifetime at all, and therefore the third brother may perform yibum with whichever of the women he wishes, or perform chalitzah with whichever of them he wishes. This applies to a case in which the second brother actually performed yibum (and not to a case of ma'amar), and he had an additional wife.
Rabbi Shimon's reasoning: from the moment the second brother performed yibum with her, her status as the wife of a brother who was not alive in his lifetime fell away. For the third brother was born after the yibum had already taken place, and we no longer relate to her status as the wife or the widow of the first brother, the status that would have made her the wife of a brother who was not alive in his lifetime. We view her exclusively as the wife of the second brother, and the third brother was alive during the lifetime of the second brother.
In this respect this case differs from the case in the first mishnah, where the brother was born before the yibum took place. There the brother was born at a time when his sister-in-law was a widow, and her status in relation to him was that of the wife of a brother who was not alive in his lifetime; whereas here, at the time of his birth she was already married to the second brother.
In summary: in this mishnah we learned a further example of the wife of a brother who was not alive in his lifetime - a brother who was born after the yibum. According to the first Tanna, the first woman goes out because she is the wife of a brother who was not alive in his lifetime, and the second because she is her co-wife; and in a case where only a ma'amar was made, the second woman performs chalitzah and does not undergo yibum. Rabbi Shimon disagrees and holds that the yibum removed her earlier status, and therefore he performs yibum or chalitzah with whichever of them he wishes.