There _must_ be competition for block space to make fees a viable way to pay for security.
Limiting block space isn't the only way to increase mining fees. Removing/reducing the block reward has the same effect. Once the reward is less than the cost to mine, most miners will require a tx fee. Given this incentive, there's really no reason to limit the block size. It is in the miners best interest to set the limit as high as possible so they can receive the maximum amount of tx fees possible. For this reason alone I foresee the block limit rising significantly.
It doesn't really work this way. It costs nothing to include a transaction so a small, self-interested miner will include every fee-paying transaction, even a small fee. In so doing, he sells out the bargaining power of miners; users will see that low-fee txs are included, and will pay less fees in the future. The damage thus done is shared by all miners, but the profit from including the transaction is all his own. This is a
tragedy of the commons problem. The common resource here is the bargaining power of miners, which the individual miner will consume at others' expense.
This will be alleviated if mining is highly centralized (which we don't want), or if there are other factors such as assurance contract funding or a limit on total bitcoins transferred per block.
The same argument could be applied to block size. Competition creates an environment where tx fees = mining costs. Right now tx fees + block reward = mining costs. Block reward is high, so tx fees are low. Once the block limit starts to become a problem, it will be increased or removed. It's a win-win for everyone. More transaction fees per block & faster confirmations. The only downside is a larger blockchain, but I don't think we're even close to limiting transactions based on bandwidth and/or storage concerns.
Keeping the block size limit may increase tx fees in short term, but long term it will be more harmful than good to the miners. People will be annoyed by the long confirmation times & high fees and start using a different cryptocurrency. Now the miners have hurt themselves by transferring value out of the bitcoin economy.