What type of server should we buy to start a web hosting service? I am just curious how a hosting provider will choose this when they start a hosting business. A VPS or a Dedicated server will fit conditions?
Depends on budget, investment etc. Most hosting companies won't turn a profit for a good while, so however you start you need to be willing to invest.
VPS is probably the best route as it's an affordable starting place if you choose the right provider, plus it's quite easy to expand a VPS as your needs grow in the future. Once you outgrow your VPS you could replace it with a Dedicated Server.
Another option would be to start with reseller hosting as well.
Answer this question first, do you have any knowledge of troubleshooting vps or dedicated server?
If no the go for reseller plan. As you are starting your business reseller hosting is perfect. You don't have to manage all things. This is also within budget. After getting some clients you can go for vps server. But without knowledge vps server can be worse and give headache.