My economics textbook says that the more inelastic the demand for a product, the greater the scope for passing cost increases on to consumers and the stronger a trade union's bargaining power will be when negotiating the wage rate of labour.
My interpretation of this is that the central theme is striking - if the workers strike, the supply of the product will decrease and prices will rise due to the shortage. So, does the union have greater bargaining power because there is popular support from the public not to increase price levels, or does this also have something to do with the industry's profit motives?
For example, a shift of the supply curve for the product to the left and will thus decrease profit if we assume that the market is imperfect. But is the ratio of profit decrease greater when demand is inelastic compared to when demand is elastic? Is it logical to assume that a strike will have a large enough effect so as to render a profit decrease, and does that come into consideration when the industry bargains with the union?
FYI (a mathematical approach):
I tried to answer this question by inputting some values and keeping everything constant except for demand elasticity and got an answer that said that the proportion of profit lost will be smaller when the demand is elastic. I didn't look into a proof of this statement for any values, but merely worked it out for a marginal cost of P=Q shifting to P=Q+20 and an initial equilibrium of Q=50/3 in both cases; in case 1 a demand of P=100-5Q with a marginal revenue of P=100-10Q; in case 2 a demand of P=-(1/5)Q+20 with a marginal revenue of P=-(2/5)Q+20. P represents price (the vertical axis) and Q represents quantity (the horizontal axis). The ratio I got of (profit before)/(profit afterwards) with these values was 1.5625 for case 1 (inelastic demand) and infinity for case 2 (elastic demand). (In other words, I happened to shift my supply curve right on to the point where demand = marginal revenue on the vertical axis, so this value is a bit unappealing but nevertheless explanatory) I deduced that the profit loss ratio was greater when demand was elastic. Therefore the industry should feel more motivated to give in to wage strikes when demand is elastic if they are considering a loss in profit. (This contradicts the original statement, but I stress again that this conclusion is based on a single set of values and might not generalize to any situation)