The Epic First Run programme allows developers of any size to claim 100% of revenue if they agree to make their game exclusive on the Epic Games Store for six months.
After the six months are up, the game will revert to the standard Epic Games Store revenue split of 88% for the developer and 12% for Epic Games.
They’re not really trying to compete financially at the moment. They’re trying to build a solid userbase and gain a high market share with younger gamers (the Fortnite crowd). They’re more than willing to lose money to do this. Once they meet the userbase target deals like this and the free weekly games will disappear.