The fees will take the place of the block rewards. Hopefully Bitcoin is used much more then, so you can earn a good penny from mining. It will always be a continually balance between what can be earned from fees and rewards and the amount of hashing power. And of course some miners will drop out, but also the difficulty can drop.
The increase in difficulty can decrease, not the difficulty, right?
I think OP was referring to what would happen when mining will no longer occur. In that case, who knows? Someone could mine the rest of them with a quantum computer in 5 years.
No, difficulty can decrease. That's the way to make sure blocks are generated approximately every 10 minutes.
If no one would mine anymore, then Bitcoin would be dead. If Bitcoin would be dead, no one would be mining anymore.
In case the quantum computer would become a success, I think we need a whole different system than Bitcoin. But that yields for every technology which uses encryption.
Mining doesn't need to be profitable forever.
Let's look at exchanges for example:
They only can profit from traders as long as the bitcoin-system works (and without mining it doesn't).
If MtGox, or BTCChina wants to keep making profits in the future, it'll be wiser to spend 10% of their profits on mining, than to lose 100% of their profits because the system doesn't work anymore.
And that's just one example,
actually everyone who wants (or profits from) a working network, be it speculators, daytraders, exchanges, merchants, younameit, has an incentive to keep the system running.
That's true, I'm just saying that fees are implemented i.a. for replacing the block award. It's also a tool to get your transaction through quickly.
