Sorry for the late reply, I had to think about this one for a bit xD

I like the idea and I completely understand the frustration of bidding on something and then finding a much cheaper auction for the same item, or just wanting to avoid bid wars.

I think the first question that needs to be answered though is what happens when someone cancels a bid, but the most recent bidder before them can't afford their bid anymore? The way that our bidding system works is by taking PC from you temporarily until another player outbids you, so canceling bids can potentially cause a mess if previous bidders can't afford their bids. The way that this could be avoided is by coding it so that the system selects the most recent bidder who can afford their bid, but I'm not sure how complicated that would be for the coder.

I also think bidders should still have some accountability placed on them, i.e. rather than being able to withdraw a bid at any time, bidders would have a period of about 6 hours (or whatever) after bidding in which they could retract their bid. After that time is up, their bid would be locked in. This way sellers can still have some certainty that their item will be sold, and buyers have some time to change their mind.

I also don't feel right about someone being able to retract their bid if they're currently the only bidder. I can see this causing a lot of frustration for sellers. I think the way that Ebay handles this is by letting the bidder request a cancelation from the seller (and providing a reason), but I could see that causing resentment on pixpet, especially if the seller denies the request. So I'm not really sure how this could be rectified in a way that's satisfactory for both parties. I'm open to ideas.

In terms of notifications, I think the seller and the most recent bidder before the canceled bid deserve to be notified when there's a withdrawn bid, but that raises the issue of notification spam. Of course it would ideally be a toggleable notif, but then I'm imagining a scenario where players have it toggled off, and it causes confusion over who the most recent bidder is and how much PC the seller will actually make from their auction. I'm open to ideas here too.

This is less important to players, but on the moderation side, imo auctions should show a history of who's canceled their bid -- just in case of harassment.

All in all, I think withdrawing bids could work if coded correctly and with fairness in mind!