Two stimuli alternately presented at different locations can evoke a percept of a stimulus continuously moving between the two locations. The neural mechanism underlying this apparent motion (AM) is thought to be increased activation of primary visual cortex (V1) neurons tuned to locations along the AM path, although evidence remains inconclusive. AM masking, which refers to the reduced detectability of stimuli along the AM path, has been taken as evidence for AM-related V1 activation. AM-induced neural responses are thought to interfere with responses to physical stimuli along the path and as such impair the perception of these stimuli. However, AM masking can also be explained by predictive coding models, predicting that responses to stimuli presented on the AM path are suppressed when they match the spatio-temporal prediction of a stimulus moving along the path. In the present study, we find that AM has a distinct effect on the detection of target gratings, limiting the maximum performance at high contrast levels. This masking is strongest when the target orientation is identical to the orientation of the inducers. We developed a V1-like population code model of early visual processing, based on a standard contrast normalization model. We find that AM-related activation in early visual cortex is too small to either cause masking or to be perceived as motion. Our model instead predicts strong suppression of early sensory responses during AM, consistent with the theoretical framework of predictive coding.